Teaching kids about money begins by teaching them healthy financial habits. Begin teaching them at an early age. Those healthy financial habits have to begin with the child understanding two general rules. First, a fool and his money are easily parted. Next, people are rewarded when they manage their money well.
Begin teaching your child these principles at an early age, and they’ll develop a keen understanding of money management.
Identification of the different forms of currency is critical. If your child can count to 100, they can identify the different coins and the values they represent. Then they can learn how to count that change. When they’re good at counting change, they can move up to paper money. After learning how to count change, that should be easy. Then they can start making some small purchases and getting change back. They’ll learn reverse operations in counting the change they got back.
Forget about the piggy bank. You can only hear what’s inside. You want your child to see money grow and not just hear it. Cut a hole in the top of a clear jar and secure the top so there’s no temptation. Encourage your child to put some money in the jar and watch it grow. You can make some contributions too. When it’s full, your child can take a sum, and you and your child can go to the bank and open a savings account. Many banks will get your child started with as little as $25. Continue with this and your child will watch the savings that you’ve encouraged grow over the years.
It’s never too early to learn about debt. Discourage credit cards. Once your child has a part-time job, it’s time for them to incur a little debt, so they can learn about paying bills. They can pay those bills with a debit card or checks. You can even get them more into managing their personal finances by getting their own checks. They’re all negotiable instruments, and one works just as well as the other for paying bills. With a job and bills being paid, the child will learn quickly about budgeting, paying bills on time, saving and having a few bucks in their pocket.
As low as interest rates are, investing starts with interest on savings accounts. That can be taught very early. Once they’re in high school, your child can begin online investing and trading under your supervision through a custodial account. For as little as $500 you can open a stock trading account with at least two very reputable online trading brokerages. You can spend one on one time with your kid researching various stocks. Whatever their interest might be, from music, clothes, electronics, science, tech, precious metals or even sports, your child can be permitted to have significant input in trading decisions. Keep the access information to the account to yourself. You don’t want your 14-year-old making trades on your dime when you’re sleeping.
Learning from mistakes
We all make mistakes, but we must learn from them. That has to be stressed. Kids might have their own money, but they have to live with their own choices on what they do with it. Negative consequences will foster smarter money decisions. They’re going to make their own mistakes with money. They’ll feel both the emotional and economic consequences of their decision and learn from them.
Development of sound financial habits is essential to money management in our lives. That foundation is best laid at an early age. Since our schools don’t teach money management, we have to be the teachers. We can teach about money whenever an opportunity presents itself. Since you’re going to be the primary influence on your child’s financial patterns, set and show examples of sound money management.