Raising your children to be financially literate will help them be well prepared to have a sound financial future. There are many lessons you can teach even young children to help instill the value of money and encourage positive financial habits. Here are a few lessons you can teach your children.
Save, Then Spend
A valuable lesson to teach children is that there will be times that making a purchase requires advance planning and preparation. Deciding to purchase a new car or saving for a down payment on a home tend to require a dedicated savings effort. You can help your child learn this lesson by helping them establish goals for things they want to buy. With a small allowance, you can provide your child the opportunities to purchase small-ticket items as well as save up for more exciting things to encourage healthy saving and spending habits. This financial lesson goes together with the concept of delayed gratification, so combining methods of teaching both lessons could be beneficial.
Know the Difference Between Wants and Needs
It may be difficult for some children to determine the differences between wants and needs, especially since they usually do not need to think about these things. However, as they get older, parents should try to explain these differences and how understanding wants versus needs can help them keep their finances healthy. Demonstrating how money should go toward groceries before toys and bills before vacations can help contextualize the concept.
Use a Credit Card Wisely
As your child gets older, it is important to teach them the importance of establishing a good credit record. One important aspect is appropriate usage of a credit card. Set a good example by not using a credit card to make impulsive purchases. Teach the importance of paying the balance in full at the end of the month to avoid high interest charges and building a large balance that will prove difficult to pay off. This practice will help your children not spend more than they have and will ultimately improve their credit score. It is helpful to work with your child to find a credit card with a low interest rate and any productive or appropriate bonus features such as cash back; doing this alongside your child gives them an opportunity to ask questions and learn with you.
Establish a Savings Account
Go to a local bank or credit union with your child and set up a savings account in their name. Encourage them to save a portion of any money they receive as a gift or from a job. Show them how their deposits grow over time. Building a savings habit at a young age will reinforce an important lesson they can take into adulthood.
Having conversations about money and modeling good behavior will help your child well into the future. It is never too early to begin having these discussions. There are numerous excellent resources available online to help you raise financially literate children.
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