Teaching financial literacy to your kids can be a difficult task, however, introducing financial basic concepts can set them up for a stable and best future.
Teaching your kids about saving, spending, or making money will make your children be financially wise.
Not sure how to teach children about money?
Here are tips you can use to help teach your children about financial literacy. These tips can help your kids to learn about financial literacy in a better way.
Differentiate Between Want and Need
As your kid grows older, it is important to explain the difference between wanting & needing. Your child can need a new pair of shoes but not a designer pair that prices $100. Obviously, if it is something your children want, you can explain how they can save up the money to buy it at a later date. You can help them make a savings plan and budget to help them reach their goal. For instance, if they earn $20 a week from chores as well as spend $5 a week on ice cream at school, help them determine how long will it take to save up for that $100-dollar item. When they will understand that money is a finite resource, then you can teach them to decide what they need.
Give Them a Payday
Several kids get a weekly allowance. If kids are given the money with ease, the perceived value will decrease and so does their financial literacy as well. Rather than handing over cash, you can provide a way for them to earn the money. An easy way of doing this’s to give them a job with a payday like an adult. For instance, taking out the trash, washing the dishes, and filling up the food of dog as well as water bowls can all be worth $1 per day. This teaches your kid that regular work like chores will be rewarded at the end of each week like payday for an adult. You can even discuss it with them by explaining how you’re paid for the work you do, just like you pay them. It is a method for introducing financial literacy to your kids in a rewarding manner.
Introduce Opportunity Cost
Once your kid realizes the money, they earn is theirs to keep, they will understand it’s theirs to spend. Instead of letting them run off and purchase something right away, teach them about opportunity prices. If they see a toy in the store for $15, ensure they understand, once they spend that money it is gone. One way to do this is to make them physically hand cash to the cashier so they realize they are not getting it back. If your kid has a bank account, let them withdraw the money. If they have a piggy bank and clear jar at the house, they put their allowance in, help them take it out of the jar. This way, they can visually see the money leaving and will have to decide if spending it is worth not having it anymore.
Emergency fund and use it correctly
As an adult, your emergency fund may be the thing that prevents you from losing everything when there’s an emergency. The earlier your kid learns about an emergency fund as well as the importance of having one, the better off he/she will be. Explain that this’s different from a savings account because it’s to be used for unexpected things that come up. Money can’t be borrowed from this fund. The big the fund the best particularly as they grow older and the emergencies go from helping to replace a window, they broke to helping to fix a car they crashed. Agree together on a set minimum limit for the emergency fund, and build it to that number by setting 10% of their allowance aside for this fund. Once it hits that number, be sure money is used for something that’s truly an emergency. (No, a sale on something they are saving for does If the money does get used, it’s to be replaced instantly before any wants are purchased, even if that means they take anywhere from 50 to 100% of their next allowance to do this.
Teach them the cash-envelope system
Being disciplined sufficient to use cash to spend is one of the great ways to live within a budget, and the simple way to do this’s the cash-envelope system. The basic idea is, if you do not have cash in the envelope, you do not buy it. Keep it easy with 5 envelopes: wants, giving, needs, an emergency fund, and a savings fund. When kids receive an allowance or other money, teach them to separate money into every envelope according to your budgeting agreement, like 15% for needs, 5% for giving, 70% for wants, and 10% for emergencies. When your kid is very young, needs may be combined with an emergency for when they need to pay for something they broke or may be used to buy their sibling an ice cream cone to replace a toy they lost or other.
Help the children create their budgets.
Budgeting isn’t something that comes naturally to everybody. Actually, several people do not even learn how to do it unless they have gotten into money troubles. Creating a budget for our kids can be hard since they frequently do not have regular monthly expenses, so theirs may be kept simple like a contribution to the family vacation fund, money into every of their cash envelope accounts as well as money towards a large item purchase that they have researched. If possible, give your kid the responsibility of tracking a small item on the family budget like a family night out or vacation spending. Allow your kid to know how much you’re able to spend on a family night out, and then help your child for planning it by comparing prices of different activities and making those options. For older children, you can give them money to make purchase options when you’re out.
Thank you for reading this article. We at YMA Financial hope it encourages you to teach your children about finances to prepare them for success.