Disclaimer: This post is sponsored by PSECU, a Pennsylvania-based credit union.
Forming good financial habits for life means starting building solid money habits from an early age. If you’re the parent or caregiver to a young child — or you’re soon to become one — here are some tips for teaching financial literacy to your kids.
Even children as young as three or four pick up on tensions in the household. In households facing financial difficulties, even though children may not be able to articulate their feelings, they nevertheless pick up on the fact that mom and dad work more hours and possess less patience.
Don’t hide the reality of financial stress from your little ones. Rather, explain economic hardship in an age-appropriate manner. Utilizing movies and videos featuring struggling families can help explain tough concepts in an easy-to-understand way.
Not surprisingly, those who begin saving while young amass more wealth and practice healthier financial decision-making skills throughout later life.
Teach children the importance of diversifying their assets from an early age. Opening a savings account for each child starts them off right and provides the foundation for gradually showing them how to expand into mutual funds, CD’s or even individual stocks. Kids who learn about the stock market young grow up as savvier investors overall.
Explain the Difference Between Wants and Needs
Every child squeals when a hot new toy they just have to have hits the market. Teach children to differentiate between things they want and things they need with each trip to the grocery. For example, unless there’s a bidet in the home, toilet tissue constitutes a need — whereas that checkout aisle candy bar represents a want.
Let Your Children Make Mistakes
Everyone learns from mistakes, children included. Indeed, errors can make the best teachers.
If a child wants to “waste” their entire monthly allowance on the latest fad, permit them to do so. Having to go without extra money for candy and treats for the remainder of the month makes a far bigger impact on a child’s money habits than 100 lectures about the importance of budgeting.
Practice Credit Consciousness
Many smart investors learn to leverage credit properly. Many people declaring bankruptcy max out credit cards with plans to pay them off at a later date which never arrives.
To begin teaching your children to use credit effectively, start by getting them a pre-paid debit card and put their allowance in that account. Older teens benefit from a small line of credit of their own, so opening a card for them with a tiny limit such as $500 can help teach intelligent credit management skills.
Turn Off the Tube
Exposure to ads not only drives impulse spending, it encourages indulgence at the sake of smart money management. Limiting kid’s screen time on both TV and computer means less ad exposure and less temptation to splurge.
Use Allowances Wisely
Two schools of thought exist in regards to allowances — some parents advocate linking allowances to chores, while others fear tying chores to money teaches children to expect rewards for things they should simply do as equal family members.
Regardless of the reason, allowances teach children smart money management. In addition, allowing children, especially girls, to request raises in their allowance makes them less timid of doing so once they enter the workforce.
Encourage Kids to Work It
Finally, a first job can teach children entrepreneurship. So let kids mow lawns, shovel snow or set up lemonade stands.
Smart money management skills begin at home. By teaching children financial responsibility, you prepare them for a fiscally-sound future! PSECU, a credit union in Pennsylvania, has created a helpful graphic with more tips on how to teach kids good money habits — check it out!
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