According to the United States Treasury’s Financial Literacy and Education Commission, financial literacy is all about mastering the skills and knowledge you need to effectively handle your finances throughout life, resulting in a lifetime of financial security and well-being.
Why start young?
Studies show that one of the best ways to teach children about money is to start teaching them early.
These findings indicate that financial education from parents during childhood can help children make better financial decisions as they reach adulthood.
Establishing a strong foundation of financial literacy at an early age is essential to helping your children become savvy savers and budgeters.
The sooner you begin teaching them the basics, the better their chances are for forming good money-managing habits that will last well into adulthood.
Here are the main areas of financial literacy you should teach your children:
1. Earning: Understanding How Much You Make
One of the most important concepts that children need to understand is how much money they make and how it relates to their spending power.
To give your kids a basic understanding of earning money, let them know what their allowance or wages will be each week and show them what they can afford.
2. Spending: Budgeting
The next step in teaching your child the value of money is to explain why budgeting and prioritizing are important.
Talk to them about how they can use their earnings to purchase items that they need versus items that they may simply want.
If necessary, create a budget with them, so you both understand where their money will be going.
3. Save: Establish Your Financial Goals
Help your child to understand that having money can also be used to save up for something important.
Talk to them about establishing financial goals, such as saving a certain amount of money by a given date or using their earnings in order to purchase something significant such as a bike or computer.
Show them how setting achievable goals can help them reach longer-term financial objectives.
4. Borrowing & Investing: Managing Your Credit Score
When it comes to borrowing and investing, teach your children the importance of managing their credit scores wisely.
Explain how they can use a credit card responsibly or take out a loan in order to purchase something they may not be able to afford right away.
Show them how carefully monitoring their credit score can help them make better financial decisions and build a stronger financial future.
5. Protecting: Preventing Fraud
When it comes to protecting their finances, educate your children on the importance of preventing fraud and identity theft.
Show them how to be vigilant about checking their credit reports regularly and sign up for fraud alerts when necessary.
Explain the dangers of sharing passwords and private information online and in public.
What Parents Can Do To Help Kids Learn Financial Literary
Chores and Receiving Pay
Introducing chores is a great way to teach children the value of money.
Implementing a system for chores helps to show that in order to receive pay, there must be an exchange of services performed.
This serves as a great springboard for them to understand the ideology behind earning and spending money.
However, make sure to regulate this reward system, as studies have also shown that there is a risk in implementing a reward system that can be counterproductive and may introduce a negative lesson of “what’s in it for me.”
One of the most important lessons to teach children as they grow into adulthood is budgeting.
Make sure to show them how much money you make, and then illustrate the importance of setting goals and saving for those goals while spending wisely on items they (and you) need.
Show your kids that budgeting doesn’t mean they can’t have fun, but rather that it is important to be financially responsible with their money.
Also, talk to your kids about how budgeting applies to them.
For example, if they want a new video game, explain why it’s important to set goals and save money before buying the game instead of spending all of their money on the game at once.
Demonstrate how budgeting can help them accomplish their goals and save money in the long run.
Share With Them Your Personal Strategies
It is important to show your children that you, too, practice good financial habits.
For example, if you use budgeting apps or track your spending in a spreadsheet, let them see how you do it and explain why you do it.
Show them the rewards of being financially responsible so that they understand why making smart money decisions is important.
Top Apps To Use To Kickstart Your Child’s Financial Journey
- RoosterMoney: Great allowance app
- FamZoo: Great financial literacy app for families
- Savings Spree: Great financial literacy app for games
- Penny | Master Your Money: Great financial literacy app for audio lessons
- Milestone: One-stop financial literacy app catered to kids
Teaching Your Kids About Money
Here are some other helpful articles about teaching your kids financial literacy: