Growing up, it can be difficult for kids to really get what the whole deal with this “money” stuff is. In all likelihood they see food appear on the table and feel heat coming out of the radiator without making the connection to mommy and daddy going to work or clipping coupons or depositing checks. The thing is, one day they will have to make that connection—because they’ll be responsible for those things themselves.
While you don’t want to make your kids worried or anxious, preparing them for the day when they’ll be accountable for bills, retirement savings, and budgeting will help ensure a smooth transition into adulthood.
Teaching your kids about money is one of the best things you can do for them. There’s plenty to learn, but here are the bite-sized highlights to make sure your kids are on track to make educated, healthy money choices as they grow up.
Money doesn’t grow on trees.
Kids may see cash coming out of an ATM, or a little piece of plastic getting swiped through a machine, and think that money appears magically. Make sure they make the connection between working hard and earning! Try paying cash for everyday purchases your kids usually see you buy with a credit card, and explain that even when no bills are exchanged, money is spent just the same.
Interest can be your best friend—or your worst enemy.
Interest can mean making savings work for you, or it can leave you spinning your wheels, trying and maybe failing to pay back a high interest loan. Good interest will build your net worth over time. Interest that works against you will increase your debt and credit card bill. Either way, interest is super powerful, and should be treated with care.
Don’t forget about inflation.
Investing may seem tricky, but if you fail to make sure your savings are at least keeping up with inflation, they’ll actually lose value every year. Whether it’s through the stock market or other investments or interest-bearing accounts, find a way to make sure your savings do work for you. If you don’t, years down the line you’ll regret it! Making sure your little ones understand this from a young age will give them a leg up the moment they start saving.
Debt isn’t always a bad thing.
Debt can be a good thing—really! When the long-term pay-off outweighs the short-term downsides, debt can be a tool, not just an obligation. Some kinds of debt, like student debt, enable you to increase your earning potential or access opportunities, and as long as you pay it off responsibly, debt can actually be good for your financial health in the long run. If you’re comfortable, use examples from your own life to drive the point home.
Buying things on sale isn’t really saving.
When you buy things on sale, you’re still using money and you’re not really saving; at the end of the day, more money is going out than in. Since kids may join you on shopping trips or grocery visits, this is an important difference to point out—yes, saving money on an item is good for the budget, but it doesn’t actually get added to the savings account unless it’s put there intentionally. No matter how you’re able to save, make sure that money goes in a separate place—for kids this may mean a separate piggy bank, and later, a separate bank account.
Keep a budget instead of keeping up with the Joneses.
Spending money with intention instead of superficiality can be the difference between grateful, confident, fulfilled kids and entitled, unsatisfied ones. A budget is the first step toward keeping track of spending and making sure you don’t veer off course, and it’s one of the most important, basic money lessons you can instill in your kids from a young age. Explain how part of budgeting is goal-setting—this could be the golden ticket to a special treat!
Money can’t buy happiness, but it can make life a whole lot easier.
Sometimes money is portrayed as the root of all evil, but that’s not the case. Money may sometimes come with negative connotations like greed, excess, and distraction, it can actually lead the way to a healthy life. Though happiness doesn’t come directly from money, money can help fix stressful problems and open up opportunities, and be used to make the world a better place—for ourselves and others.
Set money aside for charity.
Donating money is really an offshoot of one of the basic lessons of childhood: sharing is caring. As you teach your kids the other basic money lessons—mostly centered around increasing personal wealth—be sure not to forget the flip-side: give what you receive, receive what you give. It’s basic karma!
What’s the most important money lesson you’re teaching your kids?