Updated: Oct 29, 2021
Did you know that even three-year-olds can comprehend the concepts of spending and saving money? Not only that, but according to a University of Cambridge study, their money habits are generally formed by the age of seven. According to the research, parents have the most significant effect on their children's financial habits. However, even if you don't teach your children about money, they will learn it in some manner, and that manner may not always be the best. If you want to play a significant part in molding your children's sentiments, thoughts, and beliefs regarding money, the time to start is now. Here are 7 critical financial lessons that we should teach our children to help them take charge of their financial destinies.
1. Model Proper Financial Behavior
The first and most crucial thing to remember is that youngsters follow in the footsteps of their parents or elders. Children are keen observers, and they frequently imitate and absorb numerous activities just by observing their parents. As a result, parents should set a good example for their children by regularly demonstrating healthy financial habits and beliefs. This may include things like shopping on a budget, using coupons and discount offers to pay less for items, and deciding whether you need the new pair of shoes or if you can live without them.
2. Create Opportunities to Earn Money
Kids need their own money to learn how to manage it and decide how to spend it. Allowances can help with this. Don't just give them money because they deserve it; instead, compensate them for the work they perform. Cleaning the dishes, putting out the garbage, or vacuuming the house are all examples of this. Allowing your children to earn money in return for their efforts teaches them how money is earned in the real world. Furthermore, giving your children this opportunity will provide them with a solid platform to begin saving and provide instructional opportunities about appropriate saving and spending habits.
3. Teach Them Proper Savings Habits
Spending will undoubtedly be a part of your child's first encounters with money. They notice you using it to make purchases every day. As a result, it's critical to instill in children that money isn't only for spending but also for saving. Give your children a piggy bank, a savings jar, or even a savings account where they may put coins or cash to help them develop the habit of saving. Then, assist them in setting savings goals for items such as a new toy or clothes. This will help show them the process and reward of keeping good savings. It's also a good idea to teach your children about the various savings plans available, such as personal, emergency, and retirement.
4. Show Them How to Grow Their Money
Saving money is a great habit to have. However, if you want your children to understand how to genuinely accumulate wealth, educate them on maximizing what they presently have. Encourage your children to learn about the complexities of international markets once they've mastered fundamental banking skills. Explain to them the idea of investing in stocks, mutual funds, or savings accounts and how it can help your money grow. Don't forget to talk to them about the risks associated with each as well. One great way to get your kids started in investing is by opening a custodial investment account with a brokerage firm.
5. Teach Them the Danger of Credit Cards
It's just as important to talk to your child about credit cards as it is to teach them how to drive and walk. Many children and teenagers are ecstatic about the possibility of receiving a credit card but don't understand them fully. If you can correct their preconceptions now, they'll be more inclined to utilize credit cards wisely when the time comes. Credit cards may be a helpful tool when used appropriately, and children should realize this. They should also be aware of the hazards of credit card misuse. Credit cards are not free money, and they have the potential to ruin your financial life.
6. Involve Them in Household Spending and Budgeting
Including your child in your financial talks is one approach to help them learn healthy saving and spending habits. Don't be scared to discuss your financial situation or make financial choices in front of them. In many homes, money may feel like a touchy subject. Many parents may feel compelled to keep children out of money discussions to protect them from complex topics or financial difficulties. Yet, these discussions can be very beneficial to your child. Discuss with them how much money you make, what bills you have for the month, how much money you put aside for savings, and so on. Having these frank conversations with your children will help them grasp the importance of money and provide them the opportunity to learn from your poor and good decisions together.
7. Let Them Make Some Mistakes
Allow your children to make their own purchasing decisions, even if this means they may make errors and waste money. Allowing your children to make financial errors may be difficult, but it will help them develop financial responsibility. Making tiny errors while they're still at home in a safe and secure setting is an easier lesson to learn than when they're an adult. Remember that both positive and negative financial experiences will mold and assist them in becoming better in the future.
Schedule A Consultation with an Experienced Financial Advisor
Whether you’re teaching your children about proper financial habits or still trying to perfect your own, we can help. Here at Fourth Avenue Financial, our first priority is your overall financial success. We want to help you develop, implement, and monitor a strategy designed to address your individual situation to ensure all your decisions are setting you up for a path of financial success. If you are ready to start planning for your financial future, we are here to help. Contact us today at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online: https://calendly.com/fourthavenuefinancial/introductory-zoom.
Securities are offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services are offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.