Do you remember a point in your young adult life when you realized that you would have to become financially literate on your own? Many of us dealt with questions like, “Why didn’t they teach me about taking out loans in school?” or, “Why does my credit score matter? What does it do, and how is it affected?” It is no secret that our education system does not put focus on this type of practical knowledge, so the burden of passing on that knowledge typically falls to the parents.
Teaching your kids about money before they start earning their own and becoming independent is incredibly important. We expect our 18-year-olds to make serious life-altering decisions about going into debt before graduating high school. Help them make informed decisions by teaching them everything they need to know about money and finances before they leave your home. Read ahead to find out how.
The Concept of Money
You don’t have to start talking about credit scores and bridge loans with your six year old, but starting conversations about the concept of money at a young age can be beneficial. Teach your children about the basics by having them identify different coins and dollar amounts. Counting games can be fun to do with real money, and you can also use play money and fake cash registers. Set up a mini market in your home and have your kids make “purchases” there. This is a fun way for them to understand that everything they’ll eventually need will cost money.
The Value of Money
Once you have helped your children understand the basic concept of money, the next thing you will need them to understand is the value. Explain to your children that everything you own and the fun experiences you have are made possible because you have earned the money to do so. Many parents love to tell their children that “money doesn’t grow on trees,” and that is for a good reason; children naturally lack an understanding of what it takes to earn the things you have.
Once your kids reach the appropriate age, you can offer extra chores or work around the house for dollar amounts. Let them take their allowance into a real store and give them the freedom to spend their money as they please with the understood consequence of spending that amount. Tell them they have to stick to their budget and cannot spend over what they have on them. This is not only a fun and memorable experience for a child, but it will get them comfortable with the idea of money early on during adolescence. It will also help them understand that they had to work for and earn the purchases they made.
The Nuances of Money
As they get closer to adulthood, the early stages of teaching financial literacy to your children are crucial to prepare them for everything they need to know. By the time they’re teenagers, they should be ready to learn about some of the more advanced concepts of money. This is when you want to think about everything you wish you knew when you were sent into the real world. You will want to discuss credit cards, interest rates, debt, credit scores, security deposits, student loans, and investing.
And that is only scratching the surface. If this all seems overwhelming to you and your teenager, you can consider enrolling them in an online course that will help teach the basic concepts of earning and managing their money. Since there are not usually courses in grade school that teach this, consider it part of their basic education.
With so much to discuss, let’s talk about a few things to bring up that they will need to know immediately out of high school.
Student Loans: If your teen plans to take out a loan to pay for college, make sure you help them understand the consequences of going into a large amount of debt.
Credit Cards: Many teens get carried away when they have access to this “free” money. Explain to them the consequences of maxing out a credit card they cannot pay off. Tell them about the interest rates that they will have to pay to the credit card companies when they cannot pay the amount in full.
Debit Cards: Help them be selective about who they are banking with. Consider advising them to start with a card that is tied to their Venmo or Cash App account. This way, you can easily transfer them money and they will not be tied to bank fees. There are also plenty of cashback rewards for these types of cards. Check out how to get free money on cash app by taking advantage of those rewards.
Also read: Is Bitcoin Prime A Legit Cryptocurrency Trading Bot?
Money Savvy Kids
Don’t let your kids head out into adulthood without the proper knowledge of money and finance. Also, note that this will be an ongoing conversation in your children’s adult lives, so make sure they know they can always come to you for wisdom and advice.