As a parent, you want the best for your children. This doesn’t necessarily mean you want them to have the best clothes, the latest toys, or the coolest gadgets. Most likely, it means you want them to be safe and secure. You want to lay a foundation that they can build upon to do well in life.
The question, then, is whether you’re teaching your children key lessons about money that will impact their life outcomes. Here are four different ways that you can teach your child about finances.
Your kids’ early interactions with money will likely involve spending. They’ll see you using it to purchase things, including things for them. So, it’s important to teach them from a young age that money isn’t just for spending. It is important for a child to learn about what you spend money on and why. For example, it is critical that they understand why you wait for your paycheck to pay the electricity bill or why you spend money on food at the grocery store. Learning how to budget now will help them when they become responsible for their finances.
Kids need to have money of their own so they can learn how to make decisions about using it. If you want your children to become savers, allowing them to earn and save money, through an allowance, for example, provides them with the opportunity to practice. When you offer an allowance in exchange for doing chores, they learn the value of hard work. To a kid, being told to save may seem pointless if you don’t explain why it’s important. Helping children define a savings goal can be a better way to motivate them. If they know what they want to save for, help them break down their goals into manageable chunks. If they want to buy a $70 video game, for example, and they get a $10 allowance each week, help them figure out how long it will take to reach that goal based on their saving rate.
Saving money is a great habit, but if you want your kids to learn how to truly build wealth, teach them about investing. Talking to them about how a dollar can become five dollars in ten years can benefit you as a parent. A life insurance policy is one sensible financial tool to invest in. Life insurance policies for children are typically whole life insurance policies, which provide lifelong coverage. This investment can also be a lesson in starting their financial wealth at an early age. Opening a life insurance policy can teach them to invest in something that they can benefit from in the future. Your children will be prepared to make a deposit on their first home or start their dream business.
A key reason for you to teach your kids financial lessons is so you can share your money values. If you value giving to others, you can instill that value in your children by helping them develop the habit from an early age. Talking to them about helping others can help young children to understand the value that a dollar can have for someone else. Discussing what organizations to support can make them into better people.
If you want your children to develop good spending and saving habits, they need to see you making smart spending and saving choices. In short, practice what you preach. And preach with consistency. Educating your children about personal finance takes time.