Talking about money is a very sensitive and uncomfortable issue for most people.
Most parents choose to avoid having the conversation about money with their kids. However, shielding your kids from money discussions could put their financial future at risk. As a parent, you want to lay a foundation for your children which will give them a head start above their peers.
Kids, on the other hand, are eager for their parents to share their wisdom. In a Kansas City study that interviewed 300 teens about what they wish their parents had taught them, more than half of the children surveyed wished their parents taught them more about money.
Similarly, a T. Rowe survey on Kids, Parents & Money discovered that 50% of parents talked to their children about investing. 44% of parents didn’t discuss or teach their kids about investment.
If you don’t want your children to make the same financial mistakes as you did, it is important to play a key role in shaping your children’s feelings, thinking, and values about money. The question, then, is how do you teach them?
There is no such thing as a perfect time to discuss money with your kids.
There are always opportunities that present themselves which can be used as learning points. A visit to the mall, ATM, or toy shop can be used to teach a lesson or two.
Try to use examples from your personal life or that of others. Let them know your financial mistakes or success, and what lessons can be drawn from such experiences.
Teaching your kids how to save at an early age helps them develop a sense of value for money.
Being instinctive, children are likely to spend their money on frivolous things. Try letting them understand that money isn’t meant for just spending but should be saved too.
Instilling a habit of savings in your kids helps them develop essential habits such as discipline and delayed gratification which are critical for money management.
You can start by giving them a piggy bank where they can save coins or cash given to them as gifts or tips. A more likely successful approach is attaching the savings to short-term goals such as saving to get a toy, see a movie, or tickets to a game of his favorite sports club.
This would form the necessary building blocks to be able to take on larger challenges such as saving for college, first car, or a house.
Another way to teach your kids about money is by making them earn it.
Let your kids run some errands or do certain chores and get paid for it. This does not imply doling out cash anytime they do something for you or turning them to domestic staff.
Admittedly, there are house chores that kids have to do without pay because it is what is expected of them as members of a family. But, at certain times, you can attach monetary benefits to certain tasks. A good trick is by getting them to carry out a chore if they want money from you.
Alternatively, rather than pay others for a service, you can have your kids carry out the task and get paid for it. You can draw up a list of small chores they need to complete weekly and place them on salary.
This would teach your kids the important lesson of earning money through honest work. More importantly, it would help them develop entrepreneurial skills and an understanding of how to value their time and energy and the best ways to deploy it.
Teaching your children how to create a budget is a practical step towards money management.
A budget lets your kids understand that money is not an infinite resource and has to be adequately managed. As such, rather than spending their money on frivolous items, they would rather cherish every penny they are able to save.
Budgeting also enables them to better allocate money by prioritizing their needs, an attribute that will equip them later in life in setting and working towards long-term goals.
By budgeting, your kids will understand that life is not always rosy, as there would be rainy days – but the best antidote against a rainy day is being prepared.
Early budgeting skills would train your kids to be frugal with their money and live within their means. This can be a huge help to them avoiding taking on debt later in life.
Teaching your kids how to save is important, but showing them how their money can be put to work broadens their perspective on how to manage money better.
There is no better way to show your children the benefits of investing than explaining how compound interest works. Albert Einstein described compound interest as the 8th wonder of the world. This is because of its ability to increase money exponentially.
A simple way to teach your kids about compound interest is by explaining how the rule of 72 works. This rule shows your kids how many years it would take for their investment to double.
This will let them see the value in investing small amounts of money consistently and the impact this will have on their finances in the later stages of their life.
Finance books help your kids grasp the basics of money management.
They come highly recommended because your kids can always refer to them if they've forgotten a lesson. They're also helpful for the parent that is not versed in financial literacy.
The anecdotes and lessons contained in the books are immersive because, by reading, kids can see through the character’s eyes and gain a better understanding of how to make profitable financial decisions.
Books are also a less expensive way to learn about finance and money management. There are finance books that cater for just about any age from kindergarten to teenage years.
Technology plays an integral part in the life of today’s kids.
What better way to teach them about finances than leveraging digital tools? There are several money apps designed to teach kids the basics of personal finance and money management.
There is no better way to teach your kids about personal finance than being a role model yourself.
Kids are quick to pick up the traits and mannerisms of their parents. If you want your kids to be better money managers, then you have to show them how it is done through your behavior.
Your actions have to match your words. They need to see you making smart spending, saving, and investment choices. Seeing their parents display financial literacy makes it easy for them to replicate the same attributes in their life.
It helps their young minds develop the realization that is possible to manage and grow money.
Such a positive mindset about money puts them on track to financial independence and dispels the usual narrative that money is evil and hard to grow.
Apart from good character and values, teaching your kids about personal finance and money management is perhaps the best legacy you can leave for your kids. It places them ahead of the curve and gives them the understanding needed to avoid making the same financial mistakes as their peers.
We are familiar with stories of rich kids who blew their inheritance because they did not have the necessary money management skills. Having the money talk may be difficult and uncomfortable, but if you factor in the potential gains and benefits for your kids, then it is a discussion worth having.
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