Teaching Your Children About Financial Literacy
A student’s education isn’t just about history, science, math, and English. A student’s education should include finance as well. Understanding money is arguably one of the most important concepts a person should know. Much of our lives revolve around finances, from bills, taxes, mortgage payments, credit card payments, to school supplies and tuition. Being financially sound enables a person to have a better future and to live within their means. Trying to understand finance can seem overwhelming however there are many ways to learn and it’s even best to learn these concepts at a young age. Here are some tips parents can use to help teach their students about finances.
Be Open About Finances with Your Child
Speaking openly about finances has proven to be a very important first step. Sometimes parents feel uncomfortable talking about money around their students so much so that only 61% of children say they regularly speak to their parents about spending and saving money. Teaching students about money should be a regular part of your dialogue. One way in which parents can speak to their students about money is by scheduling a weekly discussion that centers around a financial topic. The consumer financial protection bureau is a good place to start for financial topics. They offer age-appropriate concepts that you can discuss together.
Wants VS Needs
Understanding the difference between a want and a need is a crucial part of developing a strong financial mindset. These two should be well defined and distinct from each other. Needs are the essentials, which means anything you need to survive such as food, shelter, basic clothing, healthcare, and education. Wants are all the other things such as designer clothes, video games, the latest smartphone, traveling, etc. To better teach the difference between wants and needs here are some questions they can ask themselves before they make a purchase.
- Is this essential to my living?
- Will not having this in my life cause me any sort of harm?
- Is this an in-the-moment kind of purchase or will it still serve its purpose a few years from now?
Children being able to answer these questions before every purchase will help them become better consumers.
Save! Save! Save!
Saving is a huge part of being financially literate and it’s not talked about enough. Being able to save money allows people to think and plan for their future. Making sure they understand how to save for something and why the concept is important helps to enforce the concept. Let’s say that you give your student an allowance of $10 every week and they want to buy a new bike that costs $100, break down how to save up for that bike and how long it will take for them to purchase it. Students being able to save up for their own wants will help them feel accomplished and help them understand the importance of money. Setting up goals or milestones for your student when it comes to their purchases gets them in the mindset that money is finite and needs to be used wisely. Additionally, make sure your student has a proper place to store their money. Depending on their age, this could be a Sure traditional piggy bank or a savings account at your bank.
Track Spending and Budget
Tracking spending, and creating a budget are foundational for financial literacy. Help create a tracking and budgeting spreadsheet for your student. Having your student log purchases in a spreadsheet is a great additional way to create an understanding of how finances and financial decisions work. Additionally, working with your student to create a budget based on their savings is very helpful. A budget could be for daily, weekly, or even monthly use, and allowing them to create one based on their preference is more likely to create excitement for using one. Set time for you and your student to review their tracking and budgeting. Giving them room to make mistakes during this learning experience is going to be the best way for them to learn and remember. Offering advice or tips on how they can make their budgeting even more efficient helps them to grow into more advanced concepts.
Help Them Grow Their Money
We often take more interest in something if we are motivated. If you want to help your student be more motivated and invested in their finances, then it can often help to offer them incentives. There are a few ways to offer incentives for your student but one of the best ways is to offer an incentive through their savings. Offering saving incentives apply to real-world situations, just look at retirement plans companies give to their employees. One of the reasons why people take part in their employer’s retirement plan is because of their matching incentive. One way is if your student is saving up for a big purchase like a new laptop you could match what they save. Another is to offer an incentive after every saving milestone your student reaches and giving them an additional set amount of money. A student that sees benefits based on their financial management will become more interested, take their finances even more seriously, and might even develop a passion for them.
There isn’t one right way to teach your student about financial literacy. There are so many financial concepts to learn that parents and guardians may find it difficult to find where to start. It’s best to start teaching them the basics, like spending and saving. It’s important to remember that routinely talking about finances with them will set them off in the right direction in their future finances. It’s never too early to start, so go ahead and start teaching your student today!
Written By: Irfan Jeddy