All parents want their kids to grow up to be financially secure. So why do so many children lack basic financial skills?
A recent study by the Program for International Student Assessment found that one in five American teens lack simple knowledge of how money works. As a subject, money seems to slip through the cracks between family and school, leaving many children to learn it on their own. The problem is that, without proper guidance, they may never grasp fundamentals like saving, balancing a budget, and avoiding debt, which can lead to stress and hardship when they grow up.
To ensure that your kids become money-smart adults, here are three things to keep in mind:
1. Don’t wait to educate
Introduce money to your kids’ lives early. Many children can understand simple financial concepts as early as five, which is a good time to teach them about the value of dollars and cents, as well as concepts like needs versus wants.
Another great tool for teaching money management at a young age is an allowance. With an allowance, children start to learn the importance of not spending all their money at once. If you don’t love the idea of giving your kids free money, create a system where they can earn it through chores or tasks.
2. Have them open a savings account
Once your children start receiving an allowance or regular income, have them set aside a fixed amount for savings. Explain that savings are important for things they want but can’t afford right now. To reinforce the idea, take them to your local financial institution to open a savings account in their name. Explain that they can deposit money into it, and withdraw from it when they have enough to purchase their savings goal.
3. Share successes—and failures
As your children’s money mentor, you should share examples from your own life once your kids are a little older. Did you pay off a credit card recently? This is an opportunity to explain the concept of debt, and why it’s crucial to eliminate it.
Of course, no one’s perfect. If you over-spent and blew your budget last month, don’t sugarcoat your mistake. Talk to them about where you went wrong, and how you intend to do better next time. Honesty lets them know that it’s okay to make—and learn from—mistakes.