Teaching Your Kids About Money: Building Financial Literacy
Teaching your kids about money and building their financial literacy gives them crucial life skills that can set them up for a successful financial future. Let’s take a look at some of the ways that you can get started with your kids’ financial education.
Lead by Example
Children learn a lot through observation, and this is especially true with money. Your financial behavior as parents demonstrate what responsible money management and sound decision-making look like. In addition, make sure that you include your child in discussions about finances. Explain the financial strategies you take and what financial goals you have. Although you should always discuss finances in an age-appropriate way, it is never too early to get started with simple ideas, such as savings versus spending.
Start Early
Introduce basic money concepts to your children as soon as they are old enough to understand the purpose of money, which is generally about 3 to 4 years old. Use simple language at first and be sure to explain the words you use, such as save, spend, and give. As children get older, introduce them to more complex topics, such as interest and taxes.
Allowance and Budgeting
Consider giving your child an allowance and/or paying them for the chores they perform around the house. This helps teach them how to manage their own money as well as sets them up to understand the concept of working for money to earn it. Once they have that money, help them understand how far that money will go toward purchases and introduce them to spending and savings techniques, such as the three-jar system and savings accounts.
Three-Jar System: Saving, Spending, Giving
When children are very young, using clear jars to visually represent saving, spending, and giving is a great way to help them quantify the idea of money and its distribution. When children receive money, either as an allowance or as a gift, they can divide the money into the three jars at a predetermined rate, such as 30% to save, 60% to spend, and 10% to give.
Banking and Savings Accounts with HRRCU
You may also want to open a youth savings account for your children at an early age. At Hudson River Community Credit Union (HRCCU), we offer a savings-only option for children under 15 that allows them to build their savings in an easy, secure manner. In addition to giving children access to an account where they can deposit part of their allowance and/or some of the money that they receive for birthdays and other holidays, youth savings accounts are a great way to help kids set financial goals, such as saving to purchase a special toy. They also learn about interest as they watch their money grow.
Give Kids Shopping Lessons
As adults, we learn to manage money and budget constantly. From deciding whether to buy an expensive latte versus making coffee at home to budgeting for weekly trips to the grocery store, we constantly engage in commerce and balance our spending and saving habits. Use these opportunities to teach your kids about daily financial tasks. Verbalize your thinking as you compare prices at the grocery store and look for deals. Normalizing these discussions helps kids recognize that thinking about money and making sound financial choices is a natural part of life.
Wants vs. Needs
It’s important that children understand the difference between needs (e.g., food, clothing, shelter) and wants (e.g., toys, treats, entertainment). As a parent, it’s important to let them know that you will take care of their needs while they are young, but as they get older, they will have to take over that job. Learning savings and setting up a youth savings account not only helps children plan for their wants now, but also in the future. Teach your children how turning saving money into a natural habit will help them fulfill many of their wants in the future.
Encourage Entrepreneurship
Help your children understand the connection between work and money and how being industrious (or entrepreneurial) can enhance that work-money relationship. Start by showing your children how to spot a need around the house and to take care of that need through chores or an odd job, and then encourage them to branch out to neighbors, family, and friends with the same mindset. This drive to find and meet needs as a way to earn more money will only grow as they age and may lead to more prosperous side jobs in their teen years.
Building Your Child’s Financial Literacy with HRCCU
Remember, building financial literacy is a gradual process. As with any lesson you teach as a parent, this one will be gradual and have its bumps along the way. Be patient and adapt your approach from one child to the next and as your children age.
Also, make sure to enlist the help of trusted financial partners, such as HRCCU. Youth savings and checking accounts serve as a managed, gradual way to help teach more comprehensive financial literacy to even the youngest of children. Our financial advisors and professionals love the opportunity to talk to young people about setting good financial habits. Contact us today to learn more about how we can help youth on the journey to financial success and responsible money management.
