Teaching primary financial skills to your children provides the highest level of influence over spending behaviors later in life. While this puts the onus on parents, failing to educate your children can put them at a disadvantage as they move into adulthood. When parents fail to teach, children may only learn hard financial lessons after making financial mistakes that may require years of recovery.
It’s never too early to learn new skills: basic money skills can be taught at all ages and requires consistency more than proficiency. Parents do not need a master’s degree in finance and children as young as three can begin to understand basic financial principles.
Preschool Ages 3 to 5
Buying things costs money. Children grasp this concept very early on. Partly because we naturally talk about the cost of things:“That costs too much,” or ‘We can’t afford that,” are common phrases parents use to indicate value and means to make purchases. Children tie the concept of swiping a card or cash, as a form of payment long before they grasp how to get money. Teaching a three-year-old that they must buy an item before they can use the item is something they can understand. This notion follows closely with the concept of ownership. Children are quick to understand what is “mine” and what is not.
Play games that involve money. Some of the most effective preschool games are ones that imitate events they experience. Pretend play as a banker, restaurant worker, or cashier are roles they see play out in everyday life. They are familiar experiences, and they can connect choosing something and paying a certain price to take it home. Local children’s museums or home activities help children “practice” real life situations involving money.
Allow children to choose. Pick three toys and have them choose which one they want. They quickly learn they cannot have everything, and they have to decide which has the highest value to them. Sometimes, it may be a choice between which shirt to wear or what family chore they want to complete. As they experience the natural consequences of the choice, they will gain confidence for the next time around.
Waiting is one of the most difficult principles for children to learn. As we move to more instant gratification, even adults struggle with waiting for meaningful things. Simple things like getting a treat after they pick up their toys, teaches discipline and patience. Offering a child one cookie if they want it now or two cookies if they wait five minutes, gives them concrete experiences for abstract concepts.
Elementary Ages 6 to 10
Chores and earning capacity. At this age, children can handle a wider range of chores and increased responsibility. Paying an allowance or giving them opportunities to earn money gives the child a sense of value, work ethic, and money management. They have the ability to earn and manage small amounts of money. Let them make mistakes and control what they buy.
Making decisions give children control over their money. As they earn, let them decide how much goes where based on your guidelines to build positive habits early on. Begin with three jars: One for things they want to buy soon, one for savings, and one for giving. For larger purchases parents can match savings or find another way to reach their goal within a reasonable timeframe. When your child sees something they want, help them understand what it costs and the amount of work it takes to achieve the goal. Having the child save up for something important teaches fundamental financial skills which get lost if you simply buy the item for them. The goal is to connect work with earnings.
Value can be an abstract concept which a child can learn ithrough buying decisions. They watch you make decisions but don’t know the thought process that goes into what you buy. Verbalizing this will help them learn to think through buying decisions, as well. When you shop, talk about what is on sale, or how much items cost. They will begin to understand how you make decisions on spending so they can begin to develop similar habits.
Identify a want versus need. Advertising easily sways children, and they are bombarded with “buy me now” messages that drive the desire for certain toys or clothes. Understanding the difference between what they need compared to what they want because it looks flashy, will teach value. They need clothes and shoes to wear, but they want a particular brand of shoes because of an advertisement or its popularity at school. Peer pressure begins to be an issue and learning how to address the “everybody has it” syndrome will benefit them in middle school when the peer pressure volume gets turned up.
Working not only builds a strong work ethic, but it also builds confidence. Kids gain decision-making power when they have money to manage. In the latter years of elementary school children can explore entrepreneurship. They can help with a family yard sale, set up a lemonade stand, or brainstorm products that would be fun to build. As children learn to think outside the box, they will find creative ways to get the things they want and need.
Middle School Ages 11 to 14
Meaningful goal setting begins in middle school. iChildren can identify value and have learned basic skills around spending and saving. Now they can set goals and save for longer periods of time. Maybe they will set aside a little each week for holiday presents. Families can save together for someone in need or a donation to a favorite charity.
Opening a savings account, starting a college fund, or other long term goals help teaches kids that they themselves can affect things financially. Children can earn money through lawn mowing and babysitting giving them more access to money for bigger goals.
Opportunity costs should be learned in middle school as they decide to buy something today, or decide to save up for something with more value. They may want to save for a bike, instead of spending the money immediately. Preteen years are also a time to begin including them in family decisions that directly impact them. Where will you go on vacation or what activities will the family enjoy? They will begin to see that compromise is required, and trade-offs are part of everyday decision making.
Marketing awareness is essential with billions of advertising dollars directed at the pre-teen market. Simply talking about the ads and what emotional triggers it activates will increase awareness of advertising tactics used by marketing experts.
It is never too early to begin educating children about earning, saving, and spending choices. Basic money management skills will put them ahead of the pack when they venture off into the world as young adults. When you make it part of the everyday conversation, they learn through repetition, even when the interest levels are low.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you're just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don't have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website here contact-us