Here are some practical ways you can increase your kids' financial literacy from the early years and set them up to win with money at any age.
Teach kids to become conscious customers by doing research and asking questions before making purchases. Is it something they need or want? Do they have something else that will work just as well? What advantages does the new one offer? Are they replacing something broken? Can the broken one be fixed?
Show opportunity costs. Opportunity costs are a way of saying that there are other good alternatives that could have been chosen. For example, if you buy this computer, then you won’t have money to go to the cinema. Learning about opportunity costs also help kids make better decisions later in life and act on them.
Encourage them record every purchase they make. Start with baby steps, first keep track of their spending for a week and then take it a step further by completing a monthly budget planner to really see where their money is going. It is a good way to explain how money works and let them learn from their “money mistakes”.
Provide two piggy banks, one for spending and one for savings. Whenever they receive money, ask them to decide how to divide their money. If they want to make a bigger purchase, they should use their savings jar first and save money. For routine purchases, they can use the spending jar. Adding to a piggy bank will also visually show how close kids are to making that purchase.
Have kids save 20% of what they get as allowance. As Benjamin Franklin said, “A penny saved is a penny earned”. Giving kids a regular allowance provides them a chance to learn how to budget using their own money.
Help working teenagers open their first savings account and educate them on how banking and tax systems work. It is never too early to get familiar with those taxes.
Once your children are playing the “money game” well, basic investment concepts can be introduced to them.
Buy shares. Your kids might be obsessed with Disney movies. Research their stocks and then encourage them to buy shares of the company. Record the "purchase" prices, monitor the performance, and after a month, ask them to calculate what they gained or lost.
Help them open a custodial account to articulate their goals, whether that’s a dream trip, a summer program, college, or even retirement. You can then help them select investments appropriate for each goal and monitor their progress.
Explain the differences between a traditional IRA, ROTH IRA, and 401(k).
The best way to teach all of this is to lead by example. Take steps as a Mom to set yourself up in a way that your children can look up to, as you show them the value of money. Make sure you teach them about the basics of finance, show them how to do research and make responsible decisions regarding spending, saving and investing. If you teach these ideas to your children as they grow up, you are preparing them for a life of financial success.
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