It’s amazing how many people do not realize that the reason adults have problems with finance is because they were not taught financial responsibility as kids. Many parents make the mistake of thinking that business matters are too complicated for children to understand, or they just plain believe that kids should not be involved in business matters. This is irresponsible parenting, and it is the main reason why most adults are in debt and don’t know the true importance of investing. Parents who want to ensure that their kids grow up with good money habits can follow the tips listed below to teach their kids the basics of finance.
Let Children Handle Basic Money Transactions
The first thing parents should do to help their children understand the value of money, is to show them the importance of money. They can do this by letting their kids handle paying for items during shopping trips. If a parent does this, their kids will easily be able to understand that money is needed in order for a person to acquire something. Once a kid has this understanding, they will know that having money is important, even if they do not fully understand money. It is important for adults to build this association for kids early, so that their kids develop a desire to have money.
Have Children Save to Buy Items
Don’t just give kids money when they ask for it. It is better to provide their children with a small allowance, but not too much that they think money comes too easily. Kids need to know the value of saving money, so that they will realize that having empty bank accounts is a bad thing. Many adults like to tell young people to save money, and they think they are doing are doing a good deed when they do it, but the truth is young people cannot learn about saving money unless they have to save to buy something they want.
Parents can introduce their children to the business of saving money by having them pick an item that they want, and then have them save in order to receive it. Each time their child receives their allowance, they need to sit down with their kid and show them how close they are to getting the item they want. This will keep their child motivated while they are saving to get the item they want.
Withhold Allowances to Pay Back Loans
Once a child learns the value of money, and learns to save money, they next have to learn about debt. A parent can teach their kid about debt by acting like a loan lending business and giving their child a loan for an item that they want. Once their child has the item they want, the parent withholds their allowance until the item is paid for. This is a very valuable lesson, because it teaches kids early what happens when a person gets into debt.
[Editor’s Note: When my son was young he really wanted a new bicycle so I loaned him the money and printed out a loan agreement that he had to sign. It included incremental interest so every payment he made he saw how much was going to interest and how much to principal. He hated that interest payment and still abhors debt many years later.]
Introduce Kids to Investing
This part may seem like something that is hard for parents to do, since most parents do not do any serious investing themselves, but it is actually pretty easy, because all parents have to do is teach their kids about the basics of investing. Parents can get their kids on the path to learning about how to invest in businesses, by explaining to them that most major businesses can be invested in by regularly people. Most people grow up without even thinking about investing in a business, even if they work for successful corporations. All parents have to do is put the idea of investing into their children’s heads, and supply them with basic materials that can show them how to do it, and their kids will have a good chance at becoming successful investors.
See Also:
- Money Management for Kids
- Entrepreneurship Helps Kids Prepare for the Best MBA Programs
- Teaching Your Kids Money Management Skills
- 5 Helpful Frugal Living Tips for Moms
- Help Build Your Child’s Computer Literacy
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Image courtesy of David Castillo Dominici/ FreeDigitalPhotos.net
Good Point. We should teach our kids about financial matters rather than wait until they become adults. Teach them how to save and about the fundamental principles of making investments later on.