Most everything adults know about money starts with the knowledge they gained as children. There are important details that are acquired over time, but some of the basics begin with a piggy bank and an allowance.
While grownups spend their time checking out the debt calculator kids are watching and learning. In order to prepare your child for the financial world that awaits them, here are 5 things that every child should know about money.
Saving for a short-term goal is pretty easy to teach children. You head into any store; even the grocery store and you hear the requests for gum, candy, toys and treats.
It is here that children can begin to learn about how to save their money for something in the near future. Whatever their allowance is or how they are earning money, let them find something that they really want that costs more than what they have, but not too much more.
This shows them the value of saving and the benefit of delayed gratification and helps them understand that the adults aren’t the only way to get toys and things. It teaches a level of personal responsibility.
Saving for the long-term isn’t always as easy to teach but the lesson is just as valuable. With short-term savings the kids may be able to pick up a candy bar after saving for just a week or two.
But there are always things that are going to come up and be a desire that a person has that will require more savings. In the case of a teenager, this might be saving up for transportation or their own vehicle.
For smaller children, think about the larger toys they really want. Talk about how much they need to save, how long it will take and what it will feel like to finally reach the goal. This is the type of lesson that will follow them into adulthood.
Spending only what you have is a difficult lesson even for adults. Everyone wants what they want, when they want and it isn’t always easy to be patient.
However, with the limited allowance your child has, teach them the value of waiting.
This lesson goes along with the idea of saving up for something. But while in the store, let them carry around their cash. If they find something else that they want but it costs more money, talk about the value of taking the money back home and saving a little more.
Kids today see a card come out of mom’s purse or dad’s wallet and they just assume that the card is connected to an unlimited supply of cash. It doesn’t matter if you don’t have enough cash to purchase something, just use the card.
While smaller children will have a tough time understanding this concept, at some point you need to teach your children that a debit card is connected to money you already have while a credit card is borrowing from someone else.
The idea of borrowing money is not that foreign to kids. They always want to borrow a buck or two to purchase something for them or go out with their friends. In most cases, you don’t mind lending them some cash, but how many times do they pay you back?
Take this opportunity to teach them that borrowing money is not free. There is always a fee associated with it.
It may mean that they have to take on an extra chore or they have to pay back more than they borrow (which is what happens to adults). Either way, they learn that there is not an unlimited amount of money to which they have access.
This guest post was brought to you on behalf of Money Supermarket.