This Is How to Teach Kids About Money: The 10 Golden Rules

This is a practical guideline for parents who want to teach their children about money

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Money management can be a tedious and complicated task even for adults. Hence, parents often ‘shield’ their kids from that ‘difficult’ topic until they are older. But, as many budgeting and parenting experts say, this could turn out to be a significant mistake that could have serious consequences.
Saving money is a habit that can take time to build, and even some adults have yet to master it.
“Children observe and soak up everything, including how you use and talk about money. In fact, family attitudes toward spending and saving and mom and dad’s financial habits directly shape how children will value their own money in the future. Parents must understand how their own habits influence children. They need to model the behavior they want their children to adopt”
said money and budgeting expert Andrea Woroch.
If you want to make sure your kid grows up into a responsible and successful adult, you should follow these ten golden rules to teach them about money.

1. Set a good example

You are the first window to the world in the eyes of your child. Kids look at the behavior of adults and mimic them. Little eyes are watching you all the time, so you should know that they probably see how you spend money also.
A study by Dr. David Whitebread and Dr. Sue Bingham at the University of Cambridge found that children form their money habits by the time they’re seven.
So, if they see you ‘slap the plastic’ every time you take them to McDonald’s or a grocery store, trust me, they will notice that.
The same goes for fights about money in your household. Set a good example, and your kids are likely to follow it as they get older.

2. Demonstrate the value of money in practice

‘Show, don’t tell’ should be the general rule in this case.
Some financial experts suggest using a transparent jar instead of a piggy bank for your child’s savings. That way, they can actually see the money they collect and watch it ‘grow.’
You need to show your kid that stuff costs money. Instead of just saying ‘Honey, this costs 5 dollars’, you help them grab those dollars out of their jar, take it with them to the store, and then physically hand the money to the cashier.
This simple action will have more impact than a verbal lecture.

3. Talk about money and finances

Money should not be a taboo topic in your household. Teaching kids about money involves talking about it, although not enough parents do it.
T. Rowe Price Study from 2019. found that 44% of parents never spoke to their children about the value of money. The same study found an alarming fact; 46% of parents have no emergency savings.
Even if your kid is very young, they should understand how you can get the products and services you are using. Children see you paying with plastic cards, paper, and also coins. We pay bills with our phones. They don’t really understand what is going on if you don’t explain to them, for example, that the ATM is not a money-making machine.
Movies and TV shows are full of money lessons that you can teach your children by merely discussing the financial choices that people there make. For example, you could turn a ‘Friends’ episode into a teaching moment, telling them that none of the characters could afford to live in a lavish apartment on 5th avenue.
When you spend, they are watching, so it would be beneficial to talk through your shopping choices with them. Explain to them how you make decisions about what to spend money on.
Make it clear that you don’t buy everything you like and want. Tell them where the money is coming from. The answer to that, of course, should not be ‘from a bank’. Be open about the family’s financial situation and what you can and cannot afford.

4. Set them up with a bank account

For younger children, a jar or a piggy bank is a reliable solution. But once your kid has a savings goal in mind, it’s better to find a better place to stash their cash.
By the time your child becomes a teenager, it would be beneficial to set them with a simple checking or savings bank account. Giving them that responsibility will help take things into perspective and take their money management to the next level.
They can use those accounts to save for college and track the progress of their savings.

5. Commissions, instead of allowances

If you simply give your children money, they will not value it as much as if they’ve earned it. You could pay them commissions based on the household chores they do at home.
In the book by Dave and Rachel Cruze (father and daughter) called Smart Money Smart Kids, this concept is nicely explained. It helps your children understand that money is earned and not just given to them. But be careful; you should only link pocket money to chores if you’re prepared for your children asking cash for anything you ask them to do. Teach them that doing good sometimes makes you happier than earning some money.
Have your kids track their spending; writing down purchases can be an eye-opening experience. But leave room for mistakes. Let them learn from their errors and make them a teachable moment.
If you want to teach your kids how to live within their means, you could act as their creditor. Suppose they are impatient about saving for a thing they want. In that case, you could ‘lend’ them the money and require payback from the allowance you provide.

6. Take them shopping

A regular household routine like grocery shopping can be a part of your teaching. Take your kids to the store, let them know the budget, and make a game out of buying needed products.
The same goes if you are buying online. Don’t just type the numbers from your card and purchase. Explain to your kid what exactly is going on when they shop online.
We all know shopping with kids can be a challenging experience, but it is also a great moment to teach them the difference between ‘want’ and ‘need.’ Teaching them not to reach for shiny objects on the shelves could require a little effort on your part, but it is worth it.

7. Avoid impulsive purchases, discuss wants and needs

It’s not easy to teach children to save money instead of spending it on something that caught their eye. Kids live in the moment, but they are capable of learning no to spend carelessly.
Explain the difference between basics and extra stuff. It’s good to use your own budget or their allowance as an example. Instead of giving in, you could use their hard-earned commission to pay for it.
In the era of social networks and flashy trends, it’s hard to raise a little human to be immune to the stuff they see are the new ‘big thing’ everybody needs to have. You can avoid this comparison trap if you teach your kid about contentment.

8. Encourage saving

As I mentioned above, saving money in a clear jar is an excellent way to go. Coin collecting is also fun. A perfect way to teach kids to handle money is to give them different pots. One they could use for saving, one for spending, and one for donating to charity.
This will teach your kid generosity and put money in perspective by showing them that things like a warm home, food, and family have value.
Offering savings incentives for your child is also an excellent way to go. To motivate them, you can ramp up their efforts by matching a percentage of what they have saved. Alternatively, you could offer them a reward for a savings milestone, give them a bonus.

9. Discuss big family purchases

Maybe you don’t feel like your kid should be a part of the decision-making process when it comes to big purchases in your home, but that could not be more wrong.
Suppose you’re buying a new car or a big family vacation. Including your kids in the talks, even if they are just listening, makes a significant difference. Let them hear how you saved for a long time for this purchase, what it means and why it’s substantial. The answer to the ‘why’ question teaches kids about your values on saving.

10. Encourage teenagers to earn money

As soon as your kid can do some work in their free time, you should encourage them to look for opportunities to earn their own money. They will probably think about what to spend it on when they’ve worked to make it.
Teens have many wishes, they want many different things, but they should learn to earn for them themselves. They have plenty of time on their hands when they’re on school breaks. Those are great opportunities to look for a job.
True, there aren’t many ‘cool’ jobs teenagers can have, but when they are faced with hardships of hard labor and minimum wages, they come to appreciate the money they make.
Better yet, help them become an entrepreneur. There are kids these days doing incredible things; maybe yours could be one of them?

The Bottom Line

Following these rules should help you raise your children into responsible adults. This is one vital part of parenting, but you should be prepared to invest some time and effort into it. Especially if you have money issues to address yourself.
Proper lessons about money can lay down the foundation for a bright financial future and a peaceful life for your children.
Do you use some of these tactics with your children? What is, in your experience, the best approach? Do you maybe have a suggestion that we haven’t mentioned above?

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