7 Things to Keep in Mind When Teaching Your Children Financial Literacy

September 11, 2018 By Jamie In Family, financial literacy

A successful financial life does not just happen. Every parent must equip their child with the tools necessary to create a financially secure life. Below is a list of 7 tips that will help you teach your child responsibility. These tips will help your child to understand the value of work and how to get the most out of their money and life.

Start Early

Many young children can understand the basic principles that will lead to financial success. Interestingly enough, research suggests that kids can develop their financial habits by the age of eight. It is essential to teach them good habits early so that they don’t have to break bad ones later.

Children have an inherent understanding of value. They understand that some things are valuable, while others are not. It is important to help them to apply those same principles to finances. Introduce them to the concept of money and monetary value early, and they will better understand it when they earn their first paycheck.

Teach Them That Saving is Crucial

Saving is the most critical practice that you can teach your children. Avoiding unnecessary expenditures and building adequate savings. Teach your children about the differences between ‘wants’ and ‘needs.’ Teach them that needs must be satisfied first, ex: food, shelter, insurance, etc. Wants are things that improve quality of life, but they will not matter much if the needs are not satisfied.

Teach Them to Make Good Choices

As a result of their limited understanding and experience, kids tend to think that money is infinite. This can lead to a warped sense of value that often carries on into adulthood. Parents must teach their kids that money is limited and must be spent intelligently.

They must understand that when they spend money on one thing, they will not have that money to spend on something else. This is the essence of economics. Children may not be able to understand the complicated nuances of economics, but they can understand the simple concepts through words and actions. Teach them that a series of good choices will lead to overall financial success.

Make A Strategy

As with most of life’s affairs, planning and preparation are crucial to becoming financially successful. Creating, and implementing, a strategy is the best way to prepare for success. Consider constructing a comprehensive financial plan. In the adult world, this would consist of estate, business, risk, insurance, retirement, tax, investment and charitable planning along with family goals and ambitions into one cohesive and integrated financial blueprint.

Explain your strategy, in simple terms, to your children. Their understanding of this concept will mature as they mature. It will lead them to develop good spending habits, investing strategy, and how to make proper choices.

Set a Good Example

Children learn best by example. They are like sponges that soak up lessons from every one of their parent’s actions. So, parents teach their kids lessons without even being conscious of it.

This makes it even more important for parents to practice good financial habits. Allow them to see the financial choices that an individual must make and the effects that each choice has. This provides them with experience that can give them a ‘leg up’ in their financial life.

Teach Them How to Handle Financial Mistakes

It is vital to help your children to avoid making financial mistakes. However, they must also know that mistakes do happen. It is imperative that children know that no mistake is permanent. There is a way back from everything, and a failure is an opportunity to learn a lesson.

Teach Them About Credit and How to Properly Use It

Many adults suffer a decrease in their quality of life because of bad credit. Credit can make or break your financial life. Knowing what credit is and how to use it is crucial.

Children must understand that borrowing is useful but must be done with caution. Careless use of credit can put an individual into a deep hole that can be very difficult to escape. Teach them to use credit intelligently and responsibly. If they do, their credit will make things easier instead of harder.

Parents are responsible for teaching their children how to live the best life they can. Teaching your children how to create a successful financial life will have a positive impact on almost all facets of their life. Children whose parents teach their children early have more success in financial matters. They must learn how to use credit, strategize, and make difficult financial choices. The preceding tips are a few things to keep in mind when it is time to talk to your children about their finances.

Sometimes parenting is difficult, and even though there aren’t answers for all of life’s questions, here are a couple resources to help you figure out how to help your children understand how to handle their money responsibly.