While the particulars of family finance practices may vary, one thing remains the same: kids need to learn how to manage money from a young age. And yet amazingly, many teenagers will graduate high school this year with no knowledge of budgeting, loans, credit, taxes, or managing bank accounts.
Because of this, the responsibility for teaching money management falls to the parents. And April is Financial Literacy Month, so there’s no better time to start than now! Here are three tips to help you kick things off.
1. Teach them to manage their allowance.
Children need to learn good spending habits, and one of the best ways to do that is by practicing with their own money. There are many ways to set up an allowance system; many parents create a chore-based system where the kids have to work to earn cash.
Whatever system you choose to go with, BusyKid helps to create a real life situation by giving kids a choice when they’re deciding how to spend their money. As adults, we’re familiar with this conundrum…and it’s called budgeting! Kids have four spending options in the BusyKid system:
- Save – On “Payday”, the kids’ allowance money is transferred from your bank account to theirs. They have the option to save all of it if they want.
- Share – BusyKid believes and research shows that donating money to real causes is an important part of basic money management. Kids can set a percentage of their earnings per week to share.
- Spend – Kids learn quickly the principle of saving their money for the thing they really want. This teaches them appreciation for hard work and hard-earned money.
- Invest – BusyKid lets them purchase fractional shares of a real stock and then watch the ebb and flow of their investments.
2. Expand their financial vocabulary.
No matter your child’s age, there are financial terms they can learn. Here are a few vocabulary examples, broken down by the age at which they are generally able to start understanding each concept.
- Savings (Savings Account), Age 4+ – This is one of the easier ones for kids to grasp because it’s easily demonstrable. Give your child two of his or her favorite treat during the day, and tell them they can eat one now, but to save the other in a special place. Do this daily for a week, and watch their reaction when they get the bag of those saved treats at the end of the week. Explain that saving your money works is the same – set aside a little bit at a time and it gradually adds up to a large amount.
- Budget, Age 8 – BusyKid’s app is a great way to teach this concept, with the four spending options (Save, Share, Spend, Invest). Any earned money is divided between the categories at the child’s discretion (which the parents’ help).
- Loan, Age 8 – Most kids grasp the basic concept fairly easily because at some point, they’ve probably lent something to someone and expected to get it back. Explain some of the reasons people decide to take out loans.
3. Show them how to make smarter money decisions.
Teach your kids about common financial pitfalls, like debt or impulsive buying. Start the money discussions when your children are young and build on them as they grow and are capable of understanding more complex concepts and nuances. Look for teachable moments. If you’re at the store and you use a credit card for your purchase, take that opportunity to explain what credit is and how it works. When you make it a regular part of their lives, financial literacy for kids comes more naturally and easily than you’d expect.