Teach Kids About Money: Financial Goals 101
Money is something everyone needs, but not everyone knows how to handle money well. It is often easy to spend, but not as easy to earn. To be able to handle money properly, you must be taught how to do it. The best way to teach someone how to handle money and set them on a good financial path is to get them early. If you can start healthy habits early in life, they stay with you much longer.
This is why we all need to teach kids about money. It all starts with a good foundation. It is much easier to teach kids about money than you realize. According to Parents.com, you are able to turn everyday activities into learning experiences. When they are young, you can make money part of imagination and games. Continue reading to find out all the ways to teach kids about money based on their age.
Teaching Money To Young Children
All kids need to be taught the basics about money. All kids should be taught to live in their means and pay money to themselves by saving money. The age of the children should guide you on how you teach kids about money. By the time children reach age 3, the can understand counting. This is a good time to begin to teach general money concepts to them. At this age, your focus should be on dollars and coins. Kids are not able to handle more complex concepts at this age.
Children at this age are not able to get jobs to earn money, but parents can give them an allowance. Create a list of simple chores your child can do and receive money for completing those chores. If they do not finish their chores, they do not get paid. Your children begin to understand the connection between completing a task and receiving payment. When you pay children, do so with actual cash. It is helpful for children to handle money. Simply putting money into a piggy bank teaches saving. When children take money out of their piggy banks, it teaches them the connection between their money, spending, and saving. While it is important for children to understand how to earn money. It is also important for children to understand spending, saving, and giving.
As your child earns money, they can see the importance of saving for an item he wants. After they begin to have money, when your child asks for something, you can refuse to purchase the item and make your child buy it. This is a great lesson in saving for the items you want. While your child is saving for items they want, you can also have them take a percentage of money and put it aside for savings. Now is when you should begin to teach your child about giving to charity. In addition to the money your child puts aside for savings, they should give 10 percent to charity.
Spending For Ages 6 To 10
By the time children reach age 6, they can begin to understand cause and effect. As a result, they begin to understand that their parents work for money. They also understand that items cost money and not all spending happens with actual money you hold in your hand. They begin to understand there are other types of money, even if they do not fully understand how they work. At this age, children are beginning to understand that different items have various costs. While they do not quite understand how expensive items are, they understand some items cost more than others.
During this age range, children begin to recognize that people have different size houses and cars. When you begin to teach kids about money, you may have to answer some of those questions. Now is a good time to begin teaching your children that money is spent on items and services. Your children have seen you purchase items but they may not have seen you purchase services. This also helps reinforce the concept of work and being paid to do a job. This is a good time to explain the job you do to your children if they do not already know. You should give your children an increase in their allowance as they get older and can perform more challenging tasks. You should also increase the chores they are expected to complete.
Goals, Needs And Wants
Your children have many wants and to this point, they may not understand completely that the items they want cost money. When you teach kids about money, you need to start teaching them about goals, needs, and wants. It does not help that companies understand that people, in general, make emotional purchases. Children are even more emotional than adults because they do not fully understand all of their emotions. As a result, marketing is targeted at playing on the emotions of children. You need to help your children understand that they cannot get everything they want. At this age, you can begin to explain the concept of bills to your child.
They can begin to understand that there are household bills and they must be paid first to run your house. Now, you can begin to explain that water, heat, and food all cost money and if those bills are not paid then there is no heat or water. After the items that need to be paid are paid then you can begin to consider some of the items you want. You should also begin to have discussions about short term and long term goals. As your children understand they cannot have everything they want all of the time, you can teach them how to set goals for the items that they want.
Depending on the item they want, it can become a short term or long term goal. Once you establish the goals together, then your children can make smart choices about purchasing. For example, do you want to buy a snack now, or do you want to save that money for an item that is on your short term list? This empowers your children to make choices but you can still guide them in the smart choice. There are apps available that help children see the money they have and how much they are saving. They can also see how far away they are from saving the amount of money that they need.
Begin Explaining Consequences For Ages 11 to 13
When children reach age 11, they are developing the ability to reason and understand the consequences. They are also beginning to change from making emotional to rational decisions. Children are also wanting to gain independence from you at this age. This is a great time to begin to expand their understanding of money. At this age, when you teach kids about money, you should start to think about credit, debt, and budgeting.
Eventually, you can start to explain apps like PayPal, Venmo, and other e-commerce payment apps. However, you should make sure your children understand the consequences of those apps before they begin using them. When you talk about payment apps and making electronic payments, you should make sure your children have an understanding of identity theft.
When talking to your children about credit, you should emphasize that if they cannot afford to pay for an item in cash, then they cannot afford it and should not purchase the item. You should make sure that when explaining credit cards to your children, you should tell them that they need to pay them off each month. Now is the time to form the way they think about credit cards. If you start them thinking as though credit cards should be paid in full each month, they will not use them to purchase items they cannot afford. At least that is the hope.
You should begin to explain how credit works and credit scores explained. You should begin to explain debit cards and how they work. You can also set up a bill that your child has to pay to you. You can choose to put that money in a savings account for your children, so they are not actually losing the money. But, you do not need to share that information with them. The purpose is to teach your children about having the money they need to pay the bill. It can teach them some responsibility with money.
You should also begin talking to your children about debt and interest with credit cards. When discussing interest, you need to make sure your children understand that interest means that money grows over time. The key to this is interest can be bad when it is associated with the money you owe. However, interest can also be great when it is money that is owed to you.
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Start Budgeting
Most adults do not even like to think about creating a budget. However, when we teach kids about money, a budget should be one of the biggest lessons they learn. It does not matter who wants to create a budget, the steps taken remain the same. When you think about a budget, it is about understanding how much money you make and how much money you spend. When you talk about children, the dollar amounts are smaller, but the process remains the same.
The best way to explain budgeting is to keep it simple. They should list all of the money they earn, it could be their allowance and any money they make doing jobs such as babysitting or cutting grass. If children have jobs, they may earn a little more money. After your children list their earnings, they should begin to list out their expenses. This is when they start to look at items that must be paid. If children are driving, they might have to pay car insurance or gas. They should include putting money in savings and giving money to charity in their budget.
Growing Savings For Ages 13 To 15
By now, your children may be working more small jobs and earning more money. Perhaps you are giving them a larger allowance. What are they doing with it? Now when you teach kids about money, you should start talking about banking. If your child does not currently have a bank account, then now is the time to open one. They can open an online account with a bank that is only available online. You could also choose a local bank so that you and your child can go into the bank together and open the account.
Some items to look for when picking a bank for your child is:
Choose the one that does not have a minimum balance or any type of monthly fees.
You also want to look for banks that offer high-interest rates for savings accounts. Savings account is one of the best options when it comes to saving money. It’s good to think about that on time. Below you can take a look at some of the best options out there, and find the one that works best for you and your child.
You also want one that allows you to manage your account online.
You also want to find a bank that allows you to have some oversight over your child's bank account. They are still young and you need to know what they are doing with their money.
Investments For Kids?
When you begin to teach kids about money, and you feel like they have a good grasp on the basics, you may want to begin to discuss investments. It is never too early for them to begin thinking about saving for retirement. They may not be able to invest in a 401k, yet, they can begin investing. You could give them a basic understanding of stocks and bonds. They should begin to have an understanding of the risks associated with stocks. They are quite a few stock apps available that can help you and your child learn about investing. These are great ways for you and your child to enter into the investing world.
Getting Ready For The Real World - Ages 15 to 18
To this point, your child probably does not know anything about taxes and how it impacts earnings. When you teach kids about money, you cannot forget to mention taxes. They are important because we are all legally required to pay taxes on all earnings and the sooner your children understand that the better off they are. There is nothing worse than getting your first paycheck and seeing how small it really is. Your child is expecting to see an hourly rate of $8.00 per hour for 20 hours of work, which would equal $160. However, we all know that is not the paycheck they will get because taxes will be subtracted.
Difference Between Good And Bad Debt
It is important to teach kids about money and debt. We broached the topic of debt a little earlier in this article, but we did not mention the difference between good and bad debt. Debt is considered to be good debt when it becomes a long or short term asset that can increase your overall net worth. Debt is considered to be bad when they are a liability. They can have negative impacts on your credit, especially if you do not pay them. You should teach your children that when they are considering taking on debt, they must consider if it will become good debt or bad debt. They should never just take on debt without fully considering the consequences of taking on more debt. You should also make sure that your young adult understands the dangers of payday and fast cash loans. They need to know that they should avoid these loans at all costs because they can turn out to be extremely expensive.
Conclusion
This article is packed full of information on how to teach kids about money and most likely you are going to need more detailed information. When you begin thinking about how to teach kids about money, you should make sure that you have all of the information for yourself. Children have a lot of questions and this will be no different. You will want to make sure that you know as much as you can about the topic so that you are able to answer all of their questions.
There are main topics that should be considered when talking to your children about finances and creating goals for themselves. They should understand that earning money is only one part of good financial choices. They must also have an understanding of savings and giving to charity. They must also understand what credit is and the best way to use it. They must also understand debt and interest. The best thing you can do for your children is to completely educate them so they can make good financial choices.