Teaching your kids financial concepts takes more than just saving change in a piggy bank. To give your kids a solid understanding of how to manage their money as an adult, you need to teach them three key financial concepts:
1. The Difference Between a Need and a Want
This is a concept that you can begin teaching your children as early as preschool and should continue to model for them well into their teen years. Teaching your kids the difference between needs vs. wants will help them prioritize the items they want to buy. By the time your child has their first job they should understand that needs, like paying bills and saving money, come before wants, like video games and concert tickets. Your child doesn’t need to have a steady income for you to start teaching them this concept though. Every time they receive money for a birthday, for example, have them decide how much of it to save and how much they will spend.
2. How to Set Financial Goals
The ability to set a goal and work towards it is going to help your child in life, and not just financially. Help your child set a savings goal for something they want, such as a toy or video game. Help them figure out how much they will need to save each week or month to have enough money to make the purchase, and how long it will take them to do so. The older the child, the larger and farther into the future the goals can be set for. If you start instilling this concept early, by the time your child has their first job, they will know how to effectively set and keep savings goals. It will also be easier for them to establish a savings habit.
3. Everything Costs Money
The third concept to teach your child is the value of money. Help them understand that it doesn’t grow on trees and they must think before they buy something. Teach your child, for example, that if they spend their birthday money on candy today, they won’t have any money to spend on your family trip to the zoo next week. Establishing this mindset for spending money will help them prioritized their wants. Is candy today more important than a souvenir from the zoo tomorrow? Maybe it is to them, but at least they made the choice and if they regret it later, they’ll learn an important life lesson at a young age.
Teaching your kids these three important financial concepts doesn’t have to be hard. Have an ongoing conversation with them about the importance of spending their money wisely and of saving. You can also help them by modeling good spending and savings habits yourself.