It is important that our kids have a clear understanding of financial literacy. Teaching our kids about money is crucial because they’ll need to understand finances all throughout their lives. It’s not just about knowing how to count coins or save a few dollars; it’s about developing a lifelong skill that needs to be nurtured and grown.
By helping them understand financial literacy, we’re setting them up for success and giving them tools they’ll always need.
However, before we move on, there are a few questions that need answering so we can clearly understand what financial literacy involves.
What is financial literacy?
Financial literacy means knowing how to handle your money and make smart financial choices.
This includes making and maintaining a budget, saving, managing a bank account, balancing a checkbook (although this may seem old-school, it’s important to know how to keep track of your spending and know how much money you still have left), understanding how credit card interest rates work, and building a good credit score.
How soon should I start teaching my child about financial literacy?
As soon as they start understanding.
The sooner you start, the better. Teach them according to their age and add more information as they get older. Learning how to save and spend money wisely is a skill that should be nurtured from early childhood.
10 tips to teach your kids financial literacy
Young kids
1. Allowance
By giving kids an allowance, you start to teach them financial responsibility. This is their money, and they need to keep it safe and use it responsibly. It also teaches them about budgeting. Your child will begin to understand the cost of things they might want to buy and determine if they can afford it.
2. Piggy bank
A piggy bank is a fantastic idea and an excellent tool to teach your kids about saving. You can use it as an opportunity to explain to your child that saving is important because it serves many purposes. Savings can provide a cushion during hard times, act as an emergency fund, or be used for special things like vacations. By using a piggy bank, children learn how to save and manage their money wisely.
3. Teach them not to spend more than they can afford
This lesson starts from early childhood. Emphasize the principle of living within one’s means. If they have only $3, they cannot expect to spend $5 when they don’t have the funds. Teach them to either save and plan to achieve their goal or to purchase things within their budget.
This is a life lesson that will serve them well in the future. It will help them avoid unnecessary debt and inspire them to take steps toward improving and reaching their financial goals.
4. Take them along when grocery shopping
Show them how to choose produce and other goods. This will ensure that as they grow older, they are not buying items that will soon spoil or need to be mostly thrown out, helping them make the most out of their purchases and spending.
It can be as simple as showing them how to pick a good avocado or as fun as knocking on watermelons and checking their yellow spots. As they get older, you can explain further whether to buy name-brand items or the generic versions. Explain how the in-house brand is often just as good as the more well-known brands, and they cost a third of the price. All these little tips will grow both their pantry and their wallet.
Older kids/Teens
5. Give them a credit card
If your child is trustworthy, consider giving them a credit card for some of their expenses or in case of an emergency. This is a great opportunity to discuss the responsibility that comes with having a credit card and how to spend responsibly.
It’s easy to overspend when you’re just swiping away, but it’s still a debt that needs to be paid off. Allowing your child to practice under your supervision is valuable.
Important lesson: Many people don’t realize the best way to manage and maintain a credit card is by paying it off in full every month. Use it as an extension of your cash, only spending what you can afford each month unless an emergency dictates otherwise.
Extra tip: If you have a good credit score and feel confident in your financial management abilities, it’s a great idea to open a line of credit for your child under your account as early as possible. You can shred the card when it arrives; you don’t have to give it to them. This will start their credit history and boost their credit score. Many credit card companies don’t have a minimum age requirement to add a user, so you can open a line of credit for them when they are babies. This move will give your child a significant head start, setting them up for a strong credit history and an excellent credit score by the time they turn 18.
6. Teach them how to do taxes
In my opinion, this should be taught in school, but alas, it’s not. Ultimately, it is our responsibility to teach our kids how to file taxes and understand how it works. This is a crucial part of mastering financial literacy.
Now, I understand that not everyone knows how to do it on their own, but you can take your older child with you when you visit an accountant to file your taxes. Explain to your child what information you need to bring and how to organize their important paperwork.
On the other hand, if you file your taxes yourself, have your child sit down with you and teach them the steps they need to follow.
This is very important, and your child will benefit immensely from being part of the process.
Most important lessons
7. Focus on financial stability
From a young age, instill in your child the importance of financial stability and prioritizing the most important things over material possessions. The other day, I heard a saying that I loved: “It is better to carry a $10 bag with $1,000 in it than to carry a $1,000 bag with only $10 in it.”
It is more important to be financially stable and have money for rent/mortgage, utilities, food, and an emergency fund than to focus on living a flashy lifestyle to impress others.
Teach them to always ensure their needs are met in all important areas of their lives.
8. Teach them not to love money
This does not mean they shouldn’t strive for a good job and a good income. After all, we all need money to survive and cover our expenses. However, there is a difference between needing money to live a comfortable life and loving money.
The love of money can turn people greedy and boastful, create feelings of superiority over those with less, and often change people for the worse. Some will sacrifice anything and anyone to obtain wealth, valuing it above all else, even over their family, friends, or romantic relationships.
Have you ever met someone who can’t stop boasting about how expensive everything they own is? Most people find it very off-putting.
So, let’s teach our kids to have a balanced view of money and wealth.
9. Don’t lose their mind over name brands
There’s nothing wrong with name brands, and if you can afford them, you should indulge yourself if that’s what you want. However, if they’re out of your financial reach and you chase them while ignoring your budget, it’s a highway to broke town. Instead of only pursuing name-brand items, help your child feel comfortable in their own skin and value themselves for who they are.
If this is something they truly desire, you can plan together to save and purchase these items without breaking the bank or putting themselves in a dire financial situation.
At the end of the day, clothes are there to serve a purpose for us, not for us to serve the clothes.
10. Surrounding themselves with people who respect their financial situation and support their financial goals
If their peers think it’s fun to put them down for their financial situation or, conversely, try to take advantage of them because they have more financial freedom, then it’s time for a change of scenery.
Teach your child that not all friend groups are good. If they often feel pressured to spend more than they have budgeted for, it can lead them to financial trouble. Trust me, no one wants to head that way.
True friends will not shame them or try to take advantage of them in any way. They will respect and love them for who they are. They will also support their goals, and if it’s within their means, they will help them reach them.
In conclusion
Although it’s better to teach your kids about financial literacy when they are young, it’s never too late to start. The important thing is that as soon as you realize there are things you haven’t taught them yet, you take the time to help them learn these valuable lessons that will set them up for success in the future.
Learning how to save, budget, shop smart, and use their money wisely are skills that will be useful and necessary throughout their lives.
Perhaps you were never taught these things and are currently learning them yourself. In that case, why not learn together? It is never too late to embark on your own financial journey, and the best part is that you can always take your children along for the ride.
Psss… You might be interested in reading How To Buy A House With Only One Income.
