One responsibility that goes hand-in-hand with being an adult is managing personal finances. Unfortunately, many adults learned money lessons the hard way – without any formal education on the subject. Many parents, however, say they don’t want their children to make the same money mistakes they did.
When it comes to teaching your children to save and invest, open and honest talks about money should begin at an early age. What you say – or don’t say – about money matters has a profound effect on how your kids will handle their finances later on.
Sharing important money lessons
Parents are the single most powerful influence in their children’s long-term financial lives.
With such influence, it seems logical parents would jump at the opportunity to teach solid life lessons about good money management. However, this isn’t always the case. What keeps parents from opening up the lines of financial communication? How can they begin to teach those important lessons, such as how to save and invest?
Many families grew up not talking about money, treating the subject as a very private affair, following the behaviors of their grandparents and parents. It may be uncomfortable for many people to bring up money, because they were never taught how to talk about it themselves.
Overcoming those fears can begin simply and slowly, with a short conversation, Each brief conversation might lead to more, and if you start with small things, it will eventually become more comfortable. It’s not something you do all in one day.
Open and truthful conversations
While speaking openly about money is not always easy for parents, the truth is parents are teaching their children about money every day. Are they aware of the lessons they’re teaching?
Choosing to teach sound financial lessons, even if it takes you out of your comfort zone, is an investment in your child’s future — something every parent can appreciate.
Here are some tips on how to get started:
- Introduce kids to dollars and cents. Teach them the value of each coin and how to make change.
- Explain the concept of earning money. Talk about going to work and what the money you earn pays for.
- Respect money. Show how small amounts of change saved in a jar can add up to a large sum of money.
- Give your children an allowance. Tie their allowance to weekly chores to help instill the concept of earnings.
- Help set savings goals. Help your child figure out how long it will take to save for something he or she wants to buy.
- Match their savings. Give your child incentive and help increase their savings quicker.
Teaching tools that give kids money skills
Understanding the value of saving begins simply and grows over time. Saving may not have meaning for your child until your child sees what saving can do, that you save up for things you want. So a younger child may have a want, and the child saves for that goal. As children get older, those dollar amounts and the things they want are going to get more expensive. The time between saving and spending will become wider, too.
Making the concepts of money and saving concrete for children is something parents have been doing for generations with piggy banks, jars, or savings account passbooks. Today’s tech-savvy kids have a number of online tools and apps available to help them grasp these timeless concepts.
Choosing to teach sound financial lessons, even if it takes you out of your comfort zone, is an investment in your child’s future.
These resources and countless others can help reinforce the basics of money management in fun and interactive ways. They also give tips on taking your child’s money management skills to the next level, including how to:
- Make spending decisions
- Open a savings account
- Get a credit card
- Invest in the market
- Give to charity
Broadening the scope
Helping your children understand the basics of saving is a great building block for introducing them when they are older to your financial institution and even to investing. Many banks and investment firms offer relationship pricing, which enables a young person to build up savings slowly in an account without some of the common minimum balance requirements, because his or her parents have a relationship with the institution.
Even young children can understand basic investing. If children can save up enough money to invest in a mutual fund or something they can understand, that will help teach them more about financial management and managing a larger amount of money.
Talking with children about investing and introducing them to the benefits of working with a Financial Advisor are important steps in helping prepare them for the future and have a stronger financial sense of responsibility.
- Begin talking with your child at an early age about money basics in short, simple conversations.
- Use a variety of resources to help build your child’s money skills and knowledge.
- Help your child establish positive money habits by giving an allowance and showing ways he or she can save.
- Be a role model when it comes to handling money matters.