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01/28/2019

Teaching Your Child the Value of Money

Money matters, and even more so when we have kids. Not only do we want our own household to be financially stable, but it is important to ensure that our kids know how to manage money for themselves (both now and in the future). Teaching your child the value of money from a young age will help them become financially stable later on in life.

Most parents would agree that finances are important. In fact, over 90 percent of parents reportedly believe that some type of financial literacy course to be a high school graduation requirement. While learning about money in school would certainly help teenagers be successful, it is even more important to provide a financial knowledge base in their own homes.

When parents teach their kids about money, it truly builds a foundation for financial independence in young adulthood, and success overall. As a parent, you want to start the money conversation as soon as possible. Fortunately, most American parents are already having those money talks with their children. In fact, studies show over half, or 56 percent have already brought up this conversation. While the task may seem daunting to teach your kids how to be financially independent (especially for parents who struggle with finances themselves), there are a wide variety of things you can do to instill financial values into your children – whether you are teaching your toddlers or teens.

How to Teach Your Child About Saving Money: Pennies and Preschoolers

For some, the thought of teaching toddlers about money may seem insignificant or even futile. However, the younger your child is when they begin to understand the concept of money, the better. Here are some practical ways that you can help your little one begin to understand pennies, dimes, and dollars:

  • Show your toddler what money looks like. Sometimes, even this simple step escapes our radar when we are busy making snacks, running bubble baths, or coloring with our littles. However, most young kids don’t see physical dollars and cents on a daily basis. Grabbing a handful of change and pulling some dollar bills out of your wallet for the kids to hold and touch will help acquaint them to their use and value.
  • Get a piggy bank or a clear jar. When you use something that is see-through, they see the money growing. When your preschooler finds spare change around the house, show them how to put it in the slot and save it for when they are a little older and can practice counting it with you.
  • Gift them a money play set or toy cash register. Preschool is the developmental stage in which children begin to engage in “fantasy play” or pretending. Help them play store keeper or go pretend shopping.
  • Show them that things cost money. Whether this is in pretend play at home or out and about, the physical act of handing over money and receiving an item in return teaches them so much. In fact, help your little one grab some change or a few dollars out of their jar or piggy bank, bring their stash with them to the store,  and physically hand the money to the cashier in order for them to buy something. This simple action will have more impact than any verbal lesson you could teach them.
Spending and Saving with Elementary and Middle Schoolers

When kids reach school age, they begin to comprehend more of the true value of money. For example, they can recognize the difference between something that costs $1 and another item that costs $100, and they can also tell you that 10 dimes makes $1. This is the perfect time to teach them about responsible spending, as well as the trade-off they are making when exchanging cash for items. Here are some ways to help your kids learn about finances as they continue to grow:

  • Teach them about the importance of contentment – and model it. Showing your kids how to be grateful for what you have will not only teach them a valuable life lesson, but it will help them learn the true value of material things, wants versus needs, and how to better spend their money.
  • Along those same lines, show your children how to give. This is very important if you want to raise well-rounded individuals later on in life. To help you get started, it’s a good idea to have your child pick a specific charity, organization or church that they want to personally help. This lesson will help your child see how giving doesn’t just benefit the ones in need, but also themselves as well. Teaching your child the meaning of charity from a young age is also an extremely valuable lesson as well. Volunteering is also a great way to help your kids appreciate what they have, while also realizing that they are capable of making a difference.
  • Give an allowance, and stick to it. Some parents prefer to call it “commission” or even a “payday,” because kids should recieve money for doing work, not simply for being alive. Teaching your children the value of work, and that time equals money, will help them take that first step into managing their own finances.
  • Avoid impulse buys. Discourage your child from buying unnecessary things right away, and model this behavior yourself. Kids are always watching, and they will pick up on your spending habits – for better, or for worse.
  • Show opportunity cost. For example, have conversations like, “If you buy that video game, you won’t have enough to buy a ticket to go to the movies with your friends later.” Teach them to prioritize their wants and decide which is worth their time and money.
Building Trust with Teenagers

While all of the money lessons before high school were laying the foundation, this time frame is when the real learning begins. We cannot emphasize enough how important it is to truly invest (pun intended) in your teenager’s financial literacy. Not only will this help them make wise choices in high school, but it will hopefully lead to their financial independence in young adulthood. Primarily, you want to know that you can trust your child to make wise decisions when the time comes in which you aren’t there to help them along the way. It’s no surprise that time will come much sooner than later. Here are some ways to help your high school learn about cash and finances, before they are out in the world on their own:

  • Re-emphasize contentment, especially as your child moves into a world of comparison. We said it before and we’ll say it again, contentment truly is the key to abundant and joyful living. Kids these days are constantly faced with the pressure to measure up, to have the latest and greatest thing, and social media has only made matters worse. As your high school opens a facebook account or joins Instagram, they will see photos and videos of other people’s “highlights” daily – not only from friends and family, but from complete strangers as well. It can be tempting to want to only wear name-brand clothes and not be satisfied if they do not receive a brand-new car on their sixteenth birthday like all of the celebrities. Remind your teenager that contentment begins in their heart, and that comparison truly is the thief of joy. They may not seem like they hear you, but they certainly are listening. And this lesson in particular will last a lifetime.
  • Include them in conversations about household finances. Teenagers need to see how you make financial decisions. Unfortunately, most teenagers hear their parents arguing about finances more than they actually see how these issues are worked out. Talk about money at the dinner table, in the car, while you are out shopping, or wherever you can find an opportunity. Overall, make it a point to discuss the household finances as a normal part of daily living. The majority of adults say that they wish they had learned more about managing money when they were teenagers. This is your opportunity to break that cycle and start talking with your teen.
  • Introduce them to budgeting. Help your child create a simple budget for themselves. If they have a smartphone, they can even use a mobile app.
  • Help your teenager figure out how to make money. Whether this is offering some extra chores around the house, helping them apply for part-time job, signing them up for a babysitting course, asking the neighbors to mow lawns, or encouraging their entrepreneurial spirit, a little bit of encouragement can go a long way.
  • Take them to open a bank account. This adds another layer to money management, and will hopefully prepare them for managing a larger account when they get older.
  • Teach them about credit and debit cards. Surprisingly, many college students don’t know the difference between credit and debit card uses. Unfortunately, credit card companies target vulnerable young adults from the second they turn eighteen years old. Talk to your kids about the dangers of consumer debt, what interest rates truly mean, and how to make wise choices. A very important aspect of this conversation should be about credit scores. Despite the fact that a good credit score is a necessary factor of good financial stability, only 32 percent of parents have explained what a credit score is to their child and unfortunately, young adults are now suffering from it. Approximately 25 percent of millennials still don’t know what a credit score is, and results of surveys show that most millennials are still confused with these monetary topics. Start talking, and encourage your kids to ask questions now, before credit cards are even an option.
  • Use real-life circumstances as lessons for your children. Real-life situations are a great opportunity for teaching your teenagers how to manage money.  Some examples of this may include when they are saving for their first car, after they have just been hired with their first job, how to save for college expenses, and so on.
  • Help your teenagers develop good financial habits – starting with the ability to save money. Show your teenagers that saving should never be an afterthought, but rather apart of everyday financing. Some parents will even provide an incentive system to help teach their children the value of saving.
  • Similar to allowing your toddler to see and handle real life money, give your teenagers some firsthand experiences. For those that participate in a 401 (k) plan, this is a great opportunity to explain and show how money can grow over time.
Transitioning to Financial Independence

Adult children who no longer require any monetary support from their parents are considered to be financially independent. While it may be hard for parents to let go initially, seeing our children to be successful on their own is truly what every parent wants in the long run. Today, the most common financial issues that college students are facing are student loan debt, rising rent costs, and consumer debt.

Hopefully, the lessons you have taught your kids as they were growing up have laid a firm foundation for financial success, even in light of these obstacles. However, it is truly never too late to start. While there are a variety of ways to help your child transition to financial independence, the primary principles of this shift are talking about it often, making a plan, and setting boundaries and maintaining them. These action steps can help parents as they encourage their kids to overcome the most common barriers to financial independence.

Overall, the value of teaching your kids about money truly is priceless, and its benefits are endless. You do not need to be making perfect financial decisions in order to teach your children the basics. You only need to have a willingness, create space for an open dialogue, and play a supportive role. We hope that these tips encourage you to start talking – today!

Sources:

https://www.debt.com/

https://media.chase.com/media-assets/infographics/chase-slate-2018-credit-outlook-survey

https://www.cnbc.com/2018/05/23/most-parents-dont-explain-this-key-money-concept-to-their-kids.html

https://www.schwabmoneywise.com/public/moneywise/tools_resources/research/parents_money_survey

https://www.schwabmoneywise.com/public/moneywise/tools_resources/research/parents_money_surve

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