4 easy personal finance lessons for almost any age
Studies show that kids who learn about financial responsibility at an early age often have higher credit scores later in life. These same individuals are less likely to default on credit cards. Most schools do not teach personal finance. That is why you will have to teach your kids about money.
If your child has access to smart phone games, then money already affects them. Every year kids spend thousands of dollars on app purchases without knowing! According to Bank Rate, it takes many years to establish great financial habits. Financial literacy for kids is not a 15-minute conversation. Instead, kids need to learn about personal finances and healthy money management. This education should continue through the course of their entire childhood. No matter how old your child is, there are age-appropriate lessons to be learned.
It can be difficult knowing how to explain money to a child. That is why we have made this super handy guide for you. As humans, we keep learning every day. Do not be worried if you learn something new while teaching your kids. Today, we have four easy lessons to focus on teaching kids financial responsibility.
1. Saving money
Instilling great saving habits starts at an early age. There are many ways to teach kids about saving money, regardless of their age. Getting your child a piggy bank is usually the first way to teach this lesson. With a piggy bank, or even a glass jar, kids can see their savings grow. Having your children help you clip coupons is a great way to encourage price comparing. It is also a great way to spend quality time together.
When your kid is old enough, drive them to the bank and help them open a savings account. Have a conversation about how the savings will be used. It can help with the idea that saving money is a step in reaching your goals. Once your child has a savings account set up, have them save at least 50% of their money. Have them deposit at least half of every birthday or holiday check. As adults, we try to save away at least part of our income. Having this action become second nature in childhood may improve future financial success. For more information on teaching your children about saving money, Investopedia has 10 more ideas!
For most people, they are conscious of their work and income. The first lesson on work can be seen with chores. The idea behind chores is that if you do work, you get paid. Kids begin to associate cash with work. This is a great time to ask your kids what they want to be as an adult. This is a good segway into how different jobs make different income. There is no reason to belittle your child’s hopes and dreams; but you can still discuss the difference in wage that exists. As your child becomes older, discuss how taxes and benefits affect paychecks.
Another part of your child’s learning is based on sharing your own experience. When you go to the doctor, you can talk about the importance of benefits like health insurance. If you do not have health insurance, you could talk about how much more affordable it would be with insurance. If you do have health insurance, you could warn your child of how expensive that trip could be without insurance. Are you working on building a retirement savings? Talk to your older kids about the differences between IRAs and 401Ks. Teach your teenager the value of money by encouraging them to get a part-time or summer job. It is a great way for them to get their own spending money. Want more advice? Parenting has a great piece on explaining your paycheck to your kids.
3. Cost of living
I remember exclaiming, “why does electricity cost this much?” when I got my first electric bill. Paying bills is an eye-opening experience for most adults. Not only do bills cost more than anticipated, there are also more of them than expected! Most kids are not aware that things like home or car insurance exist. The cost of living is a broad topic, and can be taught a lot of ways. You could learn about making decisions. One of the earliest lessons you can teach is, “if you eat all your vegetables, you can have dessert”. You could let them pick which vegetables they want while grocery shopping. Some parents even share stories about a time they decided not to buy something.
As your kids get older, encourage them to calculate the full cost of items. Have them play the guessing game over the price of dinner each night. Have them calculate groceries with tax. Have them calculate the price of dinner with tax and tip. The idea with this lesson is that things cost more than just what the tag says. If your kids are older, consider showing them the car insurance bill. You can even have them sit with you while you pay the bill. This helps them better understand the process. To love, honor, and vacuum has more info on teaching your kids and teens about the cost of living.
4. Borrowing and lending
Most Americans will need to take out a loan at some point in their life. If may be an auto loan, mortgage, credit card, or even personal loan. Your child will most likely have to take out a loan before the age of 20. Libraries and movie rentals are the first experience kids have with borrowing. They could buy a movie or book; but instead, they choose to rent it and return it. If they do not return the book or movie on time, they will have to pay more. This works similarly to taking out a loan.
As your kids get older, you can explain more topics about borrowing. They will need to know the difference between a debit card and credit card. They will need to understand interest rates. This is an opportunity to discuss the importance of paying their credit card off every month. At some point you will have to discuss their future loan decisions. You can explain common loan types as well as define APR. For more advice on teaching your kids about borrowing and lending, check out this Best Colleges Online article.
Need a refresher course on personal finances? Check out our other blogs! We have topics on: building credit, investing, using coupons, smart spending, and building a savings.