Unfortunately, there’s a serious lack of financial education available in the world today – which makes it increasingly difficult for parents to teach their children even the most basic lessons about money. The trouble is, as difficult as it can be to create lessons about finances, cash will always be an important part of your child’s life.
No matter how challenging some financial topics may appear to be, you’d be surprised just how much you can teach your children as they’re growing up. The more they learn during their early years, the more prepared they will be for the future.
1. Why Money Matters
During the early years of a child’s life, they’ll have a basic understanding of what money is, and why you exchange it for goods and services. However, it might be a good idea to sit them down and explain how the concept of an “economy” works – even in very basic standards. Giving your children a brief introduction to the importance of money for a society can be more useful than you might think.
2. What It Means to be Greedy
No matter how well-off you might be as a child’s parent, it’s important to give your child lessons about “greed” to help make sure that they don’t end up spoiled. Most children can understand what “greed” means to some extent, particularly if you put it in terms that they can follow. For instance, try explaining that if another child took all the toys at school and didn’t let your child play with any, that would be “greedy”. Make sure that they understand the consequences of greed too. For instance, you might lose friends, or get into trouble and be unable to have the things you want at the end of the day.
3. How to Budget
While budgeting can be something of an exhausting and stressful experience – no matter your age, it’s also one of the most essential skills you can develop in life. Budgeting is a crucial skill for parents to teach their children, and it belongs right alongside how to cook their own dinner or do their own laundry. If you can explain to your child why budgeting is important, then you could set them up for an easier life with plenty of financial security.
4. When It’s Important to Save
Learning how to save can be difficult for a child – particularly in a world that’s defined by instant gratification. If your child sees that you can pay for something using a piece of plastic when you don’t have enough cash in your wallet, they might wonder why they can’t do the same thing. Teaching them how to save for large purchases, and why it’s important not to spend over your means can be a crucial way to set your youngster up for long-term success. Saving gives your child more time to decide what they really want to buy and helps them to achieve the satisfaction of saving for a goal.
5. What “Being in Debt” Means
As your child grows up, there are times when he or she might hear the word “debt” being thrown around – particularly if you and your partner have problems with money. Explaining what debt means to your child and how they might be able to avoid it in the future is a good way to reduce the risk that they’ll end up in financial trouble. However, remember to teach them how to carefully and proactively pay off debt too – after all, some loans are almost unavoidable, like student debt and mortgages.
6. Understanding the Difference Between Needs and Wants
The difference between wants and needs is one of the first financial lessons a parent will teach their child. Although everything can feel like a “need” when you’re young, it’s important to help your child recognize that just because they really want something, doesn’t mean they can afford to buy it. For instance, while they might “need” clothes for school, they don’t necessarily need designer brands.
7. How to Use Credit Carefully
At this point, credit is basically a natural part of life. Teaching your youngster how credit cards work is important to ensure that they know that you’re not just accessing free money every time you swipe a plastic card. Remind your child about the “debt” conversations you’ve already had, and inform them of what “interest” is, and how it can snowball over time.