Parents have a lot on their plates these days. Whether it’s juggling time or schedules, families are constantly on the go. Whether they realize it or not, parents are also teaching their kids lessons about how to function in the world. This includes financial lessons. By example, parents are showing their kids how money impacts their day-to-day life. How can parents better prepare their kids to be good stewards of their finances as adults? Below are some tips to get you started.
Teach Kids About Budgeting
Start early! Children as young as 3 years old understand the concept of money, so it’s never too early to start talking with your kids about money and how to use it responsibly. As kids get older, they can participate in decisions around money. Show your child the amount of money they have to spend at the store, then allow them to comparison shop for the item or items that would fit into the budget they have available. As children get older, continue these conversations, and consider talking with them about your own household budget. By making these conversations informative rather than stressful, children begin to understand the concept of budgeting and prioritizing expenditures.
Demonstrate Healthy Spending Habits
Kids of all ages will pick up on your attitude toward money, so keep it positive. Use opportunities when out in the real world to explain spending, and how you prioritize certain expenditures over others for the benefit of your family. You can make it fun too! Try a few of these ideas:
- Arrange a Scavenger Hunt: While at the store, ask your kids to find a specific item at the lowest price and read the numbers aloud to familiarize them with prices. Try this online too—a search for the best price for an item online can teach comparison shopping.
- Set Expectations: Before entering a store, clearly state that you will stick to your list. Verbalizing this intention can keep both you and your kids in line—and help you avoid fights as you pass the toy aisle.
- Demonstrate Being Frugal: Let your kids see you make choices as minor as packing a picnic lunch instead of dining at theme park restaurants or as major as opting for a budget ride over the luxury model. Communicate how the difference in cost can be put to good use.
Allow Your Kids to Earn Their Own Money
Give your kids the opportunity to earn their own money. There are tons of possibilities, from doing odd jobs at home, building a lemonade stand, or even selling unwanted toys and clothing items. Older children can look into babysitting or even working part-time at a local establishment. Once the money starts coming in, consider assisting your child by opening up a savings account (for the younger kids) and a checking account (for the older kids), so they can get in the habit of tracking their deposits and debits against their statement. For older kids, a checking account with a debit card may be a great way to test the idea of “paying with plastic” before dipping their toes into the world of credit and credit cards, as it will help them to understand that the money is ultimately coming from them.
Teach Your Kids About Debt and Credit
Your children need to be aware that each time you use your credit card, you're borrowing money. It's important for kids to understand that a credit card isn't something that provides infinite access to cash, and that you'll have to pay back any purchase you make (possibly plus interest).
Highlight the importance of making good on your agreements with your lenders by using credit responsibly (for example, making on-time payments and keeping balance low). You can go over the ways you've used debt to do things like buy a car or purchase your home. You might even explain what a credit report is, and why credit scores are important. Teenagers especially should be aware that a positive credit report will help them rent an apartment when the time comes.
Credit cards are probably the type of credit you interact with most frequently, and they can be a great starting point. You may be inclined to instill an early fear of credit card debt, but don't shy away from explaining how to properly use credit, and the positives that can come with it. Go over the steps you take to maintain a low balance and responsible payment history (the two most important components of a credit score).
Solidarity is here to help you as you work to educate your kids about finances. Did you know that kids and teens who complete our online financial education course receive $25 in their Solidarity account? Learn more about our partnership with Banzai and see the courses available at our Online Learning Center.