Being smart with money isn’t something you’re born with, it’s something you learn. Having conversations about money with kids at an early age can have a positive impact on their lives and prepare them for future adulthood.
Financial intelligence is an essential life skill that every parent should teach their children.
Here are 4 conversations you should have with your kids to give them a basic understanding of finance and the value of a dollar.
1. Have Them Save for a Toy (Savings)
An established savings habit is part of good financial hygiene. Explain what motivates you to save your own money, and explain it with concepts your child can relate to.
Introduce positive reinforcement when children practice a savings habit.
Demonstrate the gratification of saving with milestones. Implementing both short-term rewards and long-term goals will help them internalize and retain the concept.
Give your child an allowance and encourage them to save half of it. Each time your child chooses to save, reward them with something small. For example, they could pick where to eat or a movie to watch together.
To introduce a long term savings goal, offer to help pay for a toy once they’ve saved up half the cost.
2. What Do We Need? (Needs vs Wants)
Clearly distinguishing wants and needs is essential for having good financial health. It helps kids grasp the concept of delayed gratification, saving money and avoiding impulse buys. It also helps kids along the path to self-discipline.
Engage in a brainstorming session with your kids to strengthen this concept.
First, you’ll want to create a list with two categories labeled “Wants” and “Needs.” Generally speaking, “needs” are things we need to survive- things like food, shelter, water and transportation should all be included. “Wants” are things that are fun but aren’t necessities, like toys, vacations, and eating out at restaurants.
Work with your child to elicit the correct responses. Ask your child, what do we do everyday? Their answer might be “eat breakfast”. Follow up with a question like “what would happen if we didn’t eat breakfast?” that illustrates the necessity of that everyday action.
Understanding that a necessity like food costs money is a great way to establish the monetary value of needs.
3. Tell Yourself No (Self-discipline)
You’ve probably had to tell your kid “no” when they ask to buy things like toys. Show that you tell yourself “no” sometimes, too, and they’ll begin to grasp the concept of self-discipline.
Modeling self-discipline is the best way to encourage it in your kids. At the grocery store, explain that although you want a tub of ice cream, you’re telling yourself “no.”
Follow up by asking if your child has told themselves “no” before. Maybe they’ve shown self restraint by waiting their turn or being patient with a normally frustrating situation.
4. Feeding Your Piggy Bank (Net Worth)
Piggy banks make saving money fun and understandable for young children. Depositing change into the bank is a tangible action that will elicit a feeling of accomplishment. As their piggy bank becomes heavier, children understand the accumulation of their savings.
A bank that looks like their favorite character or a cute animal makes this learning device a fun toy.
Teaching your children about money at an early age can help them be much more responsible as an adult. With our suggestions, you can introduce the true value of a dollar to your children and guide them into better financial health into the future.
