Teaching Children About Money
A middle-income family will spend roughly $250,000 to raise a child. For higher earners, it shoots up to $500,000!
This is a large investment for anyone, but as any parent will tell you, an important one. A recent survey showed that 75 percent of parents believe their kids are “a little spoiled.” It is easy to placate a crying child in a toy store, but money lessons they learn at an early age will dictate future money habits. Teaching sound money principles is by far one of the most important things a parent can teach a child. Given the amount of money it takes to raise children, here are some tips to help them learn valuable financial lessons:
* Start as early as possible. As soon as a child begins to ask for things is a perfect opportunity to teach them the value of money. Even if they don’t know how to add and subtract, they may be able to understand the concept of money. In order to buy things, people need to make money, and money is not an unlimited supply, so they have to prioritize spending. Once kids can learn that they are able to buy things with money, they often show instinctive conservatism where they hoard every cent. This is a great time to buy them a piggy bank and encourage them to save. You can visit sites such as feedthepig.org, kids.gov and themint.org/kids for some great teaching tools.
* Encourage your kids to work for money. Giving an allowance is a very effective tool. This will help them learn that money isn’t free and has to be earned. This also empowers them to play an active role in managing their money. Make sure allowances aren’t given to discourage bad behavior (e.g., for every day you don’t kick your sister, I will give you a dollar) and isn’t too high, leading to unrealistic expectations.
* Teach them about investing and savings. Opening up a savings, checking and investing account is a good way to teach them finances and responsibility. Learning to balance a checkbook should be one of the first things kids know. Also, teaching them about compound interest and how time is one of the most important factors in making money will help get them in the mindset to invest early and often. (Go to artofthinkingsmart.com to get more information on investing.) Help them set up a budget, understand debt, interest and why credit cards can be very dangerous. It takes years to build up a nest egg, but can take a brief moment to lose it all if they are not careful with their spending.
* Encourage them to give to charity. Studies show that more people are happy when they give to others over themselves. Giving to your church or favorite charity will teach children at an early age the importance of helping others. Get the entire family involved, and ask the kids to pick the charity they want to help. You can go to charitynavigator.org and guidestar.org for ratings and more information.