Teaching Kids About Money
It's never too early to start teaching kids about money. After all, the lessons we learn as children create the foundation for our future.
Although your seven-year-old might not be able to fully grasp the importance of building a strong credit score just yet, you can teach him smaller lessons that will lead to a better understanding in the future. Start with simple things, like how to save up allowance to purchase that specaial toy he desperately wants. Through the years, you can incorporate other financial lessons as well, such as opening checking and savings accounts, using credit cards responsibly, and saving for retirement.
Read on for helpful tips on how to teach your kiddo (or grandkiddo) about money management.
Start With Saving
One of the most critical lessons your child will learn about money is the importance of saving. Immediately spending an allowance may be tempting, but your child needs to learn that if he or she saves up money over time, they can afford to purchase more expensive items. Additionally, explain that we save money for the future so that we can manage through tough times, when money is tight, and also enjoy life after retirement. When your child reaches their late teens, teach them to build an emergency fund for unexpected situations (a flat tire, for example, or a stolen phone).
Don't forget to stress the importance of keeping your savings stored somewhere safe, like at a bank or credit union that is federally insured. At BluCurrent, kiddos can store their savings in a Kids Account, designed specifically for kids 11 years and younger.
Delve Into Budgeting
Without a budget, it's difficult to pinpoint where your money is going. Have your child track where they spend money for a month or two, so that they can see how much they spend on movie tickets, new clothes, sweet treats, video games, etc. Then, help them create a budget for their allowance, allocating some money toward "wants" and some toward "necessities" and "savings". If they want to save up for something special, sit down together and figure out where they could save a bit of money. For example, maybe they could rent movies at home instead of going to the movies each week in order to buy that cool new pair of jeans. When you are teaching your children about budgeting, don't forget the importance of giving back. Teach them from the start to give to charities that are important to them. If they put away just $1 each week, they could give over $50 to their favorite charity at the end of the year.
When your child is a little older, you can start explaining how credit works. If they have seen adults paying with credit cards over the years, but they need to understand that credit cards do not provide free money. Instead, they allow adults to borrow money to pay for things. Explain the importance of paying your credit card bill on time and in full, both to avoid debt and to build a healthy credit score. Highlight other areas where they can build credit, such as paying their utilities and other bills on time.
This is just the tip of the iceberg when it comes to teaching kids about money, but with these three steps, you can give your child a basic understanding of how they should be saving and spending their money if they want to be financially responsible and secure.