Teaching Your Kids About Money? Here Are Five Life Lessons That Can Help
Dear Readers: Most of us think of April as tax time, but did you know that April is also Financial Literacy Month? While it's not something we go out and celebrate, it is certainly worth our attention. Officially recognized by the U.S. Senate in 2004, Financial Literacy Month shines a spotlight on the importance of teaching Americans how to establish and maintain healthy financial habits. That may sound a bit lofty, but in reality, it just makes practical sense. And the earlier we start to learn the better off we are.
Which leads me to one of my pet subjects: the important role parents have in teaching their kids about money. With the lack of adequate financial education in many of our schools, it falls on parents to introduce kids not only to practical realities such as managing a checking account and sticking to a budget but also to bigger financial concepts such as saving for a goal and investing for the future. And the good news is, according to a Council for Economic Education video I recently watched, kids do understand how important these things are.
In the video, elementary to high school students shared thoughts on the importance of financial education. Their comments were fascinating, ranging from "I want to be able to protect and take care of my family" to "You need to know the practical basics to live" to "Dreams cost a lot." All of these comments relate not just to money but also to life. And to me that's great, because life lessons and money lessons go hand in hand.
These young people seemed pretty financially aware, but I know most parents struggle to get their kids engaged. So in the spirit of Financial Literacy Month, here are some common life experiences I think parents can use to get their kids to pay attention to important financial concepts.
Five life lessons to help teach your kids about money:
1. Getting an Allowance.
Want your kids to make good money choices? Give them some money of their own to manage. An allowance is a good first step. Be sure to set expectations right from the start. For example, you may want to tie at least part of their allowance to chores, which can give them a taste of responsibility as well as an understanding of what it's like to work and be rewarded.
Also, what do you expect your kids to pay for with their own money? Help them come up with a budget to handle their expenses, and don't bail them out if they fall short. The amount and frequency of an allowance will change as your kids get older, but the main thing is to let them manage and make their own mistakes.
2. Saving for a Big Purchase.
Whether your child wants a bike or a laptop, having a genuine savings goal brings home the concepts of trade-offs and delayed gratification. Start by creating a time frame and savings plan for making the purchase. Help your child track spending and identify opportunities to save. An online savings calculator can be a great motivator -- as can offering to match a portion of your child's saving. This would also be a good time to help your child open a savings account and become familiar with the concept of compound interest.