Here are the Four ways to teach young kids about personal finance
The earlier children develop good spending habits, the better. Here are four ways you can teach your kids about saving money and living frugally.
1. Pay in cash. Using cash instead of cards when shopping with kids will help them better understand how money works. Consider giving them the cash to count out when it’s time to pay — they’ll get to practice their math skills.
2. Show the benefits of comparing prices. Encourage kids to look for the lowest prices at the store and figure out if you’ll get a better deal by spending more to buy larger quantities. Make it into a game to see who can spot the best deal first.
3. Set tangible goals. Let kids know that you’re saving as a household for something they want (such as a trip to Disney World or a pool for the backyard). This will help teach them about cutting out unnecessary expenses to save for something bigger down the road.
4. Let them do the grocery shopping. If your kids are older, have them choose their meals for the week, then make an ingredients list, find the items needed at the store and pay for everything in cash.
Are you teaching your children about how to handle money but not about how to handle credit? It is certainly tempting to try to protect your kids from money mistakes by keeping them away from credit cards—or by not even talking about credit at all. However, by doing so, you might be missing an important teaching opportunity.
Believe it or not, you can start talking about credit fundamentals when your kids are quite young. Your explanations can then become more detailed as your kids get older and are better able to understand the nuances of credit reports, identity theft, and credit scores.
Prep for their questions. When kids start asking about credit cards, that is your cue that they are interested and ready to learn more. For instance, your children may ask how the money “gets onto” your credit card. Or, if you mention not buying something because you can’t afford it, your children may quip, “Why don’t you just use your credit card to buy it?” These are great teaching moments.
Explain how credit works. Clarify for your imaginative children that there is no actual money “on” your credit card. Explain that it is a tool that allows you to borrow money instead of having to carry cash. Emphasize that the money you are borrowing is not free because you have to pay it back every month. If you don’t repay all of it at once, the company will charge fees, or a percentage of what you borrowed in interest.