Kids learn their behaviors by observing adults and learning lessons from their parents. As a parent, you should not rely on school or media to teach your kids about money management. School districts are focused on test areas like reading and science rather than a practical skill like handling finances. Media examples through television, the Internet and magazines are often demonstrations of excess that should not be held as ideals for children. You should exhibit good financial behavior and create lessons for kids that ease them into money management.
Your first lesson on money management should connect what your little ones learn in school to the financial world. Math lessons in elementary school often deal with simple addition, subtraction, multiplication and division. These lessons often relate numbers to real-world items like apples and oranges to turn abstract formulas into practical situations. You should approach money management lessons in the same way to ensure that your kids can relate to new lessons. A kid who gets to move coins and paper money in order to demonstration addition and subtraction will have an easier time with money management lessons later on.
Kids also need to learn how transactions and payments work in the real world using simple terms. You might need to brush up on these lessons to explain why we use paper money and coins to pay bills. A lesson on how checks work can demystify the strange experience of handing a signed piece of paper to another person. Depending on your child’s age, you can start to talk about credit and debt while stressing the importance of avoiding needless financial risk. You don’t need to have a graduate degree in economics to explain some of these basic principles to a kid.
An effective tool for teaching money management to kids is to use hands-on experiences from an early age. Your bank might offer a kid’s program that includes a piggy bank, wallet, and account book to encourage savings. You should discuss the need to save a little each week every time that your kid receives money. Kids who earn money mowing lawns, delivering papers or helping neighbors with household tasks are motivated to save when they see money build up in their piggy banks. These real-world experiences allow your kids to achieve balance between spending and saving their hard-earned money.
You can also ease kids into money management by showing examples of your family finances that can illustrate earlier lessons. A good lesson for older kids is maintaining a checkbook, which can be completed as you pay bills each month. You can talk about home mortgages, car payments and educational expenses in simple terms to explain why people need to earn money. These lessons do not need to focus on complicated investments or lending schemes but should set the foundation for sound financial decisions. A gradual evolution in a kid’s knowledge of money management can prevent costly mistakes that might impact your financial security down the road.