It doesn’t take long before kids figure out that money has a special status in our society. Just watch the eyes of a 4-year-old light up at the sight of a penny lying on the ground, “Money!” or listen to their excited voices as they share just how much money the tooth fairy left them under their pillows.
Knowing how to manage your money is an essential life skill. As parents, we can start to educate and empower our children to make smart choices with their money. By teaching them to spend and save their money wisely, we are giving them a gift that lasts a lifetime.
8 Ways to Teach Kids about Money Management and Raise Money Smart Kids
#1: Is there a record of it? – Keeping good records of money saved, invested, or spent is another important skill young people must learn. To make it easy, they can use 12 envelopes, 1 for each month, with a larger envelope to hold all the envelopes for the year or you can use a spreadsheet. It really depends on the child’s style. Establish this system for each child in the family.
#2: Going Shopping! – Going to the grocery store is often a child’s first experience with money. Spending smart at the grocery store (using coupons, shopping sales, comparing unit prices) can save thousands of dollars each year for a family with children. To help kids learn, show them how to compare prices per item/oz/lb etc. Ask them questions to help them figure out what is the best item to purchase. On other shopping trips, you can talk to your kids about quality products, warranties, and other things to consider when making purchases.
#3: Let them spend! – Whether they make a great purchase or a poor purchase, they will learn from their spending choices. You can then initiate an open discussion of spending pros and cons before they make another purchase. Do not fall into the “I-told-you-so” conversation trap because they will stop listening. Asking them questions and letting them come to the conclusions on their own is the best method of teaching. Encourage them to do research and consider other things they could do with that money before making a purchase.
#4: Do they have ad sensibility? – Talk to your children about how to evaluate TV, radio, print, and digital ads. Encourage them to ask lots of questions about the ad. How does the ad make them feel when they see it/hear it? Is a price offered truly a sale price? Are there other products available that will do a better job, are less expensive, or offer better value? Remember to tell them that if something sounds too good to be true, it usually is.
#5: Drowning in Debt! – If you charge interest on small loans you make to your children, they will learn quickly how expensive it is to rent other people’s money. We did this with our daughter over the summer. She learned really quickly that a plane ticket costs a lot more when you pay for it with interest added on.
#6: Paper or plastic? – Every time you open your wallet, you have the opportunity to use paper (cash/check) or plastic (credit/debit). When you choose to use plastic, be sure to explain to your children that you are borrowing the credit card company’s money. If you pay it back within a certain time period, you get to borrow it for free, but if you don’t, you have to pay them lots of extra fees such as interest, late charges and more.
#7: Who’s knows your information? – Be very clear with children about protecting their personal information: name, address, passwords, social security number, bank account numbers, etc. Money fraud and identity theft can happen even with children. My daughter’s social security number was stolen when she was just a few years old! Shred receipts you don’t need for tax purposes and anything with a name and address listed on it.
#8: Family Finance Councils – Sit down as a family for regular group discussions. Talk about money goals; the difference between cash, checks, and credit cards; wise spending habits; how to avoid the use of credit; the advantages of saving and even investments. As your children get older, you can also discuss what is happening with money and economics locally, nationally and internationally.
All of this information will be important as they take on more responsibility for their own financial well-being. By helping them develop smart money skills early, you are setting them up for future success!
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