Our youth have a deep lack of understanding when it comes to properly managing finances. I know my two older grandchildren want to run to the store every time they receive money. It has been a monumental uphill battle to train them how to manage their money. Statistics have generated a national movement to incorporate financial literacy into our education system and encourage parents to teach money management lessons at home.
Currently, only 17 states require a course in personal finance in order to graduate high school. It is imperative that young Americans learn financial literacy at home. Teaching kids how to appropriately manage their finances is essential so they have the necessary tools to become financially responsible adults. In honor of financial literacy month, I decided I would give you some tips on how I taught my children and how I currently teach my grandchildren about personal finance and money management.
1. Use Cash
While it’s true that credit and debit cards are more convenient, children are paying attention to how you manage your money. Using plastic doesn’t allow them to see the actual exchange of money for purchases. When you use cash,children will see the transaction take place, and witness the exchange of cash for goods or services. It drives home the point that in order to make a purchase you have to hand over your hard-earned cash
2. Bank/ATM Visits
A visit to the bank or the ATM is a great way to explain where money comes from. Children can see that the bank doesn’t just give out money; it’s a place to store the money you’ve earned, as well as the place where you can go if you need to take out a loan. Many local banks will be happy to provide a quick tour of their location, which will show your child how money is stored and transacted.
3. Grocery Shopping
If you are like me, you hate to take your children to the grocery store, because they want and beg for everything they see. Although I hate to take them, a trip to the grocery store is a great opportunity to begin building basic money management habits. Parents can show children the benefits of comparison shopping and how to stretch a dollar as far as it can go. While shopping together, parents can talk to their children about the price of each item and explain how using coupons can add up to huge savings. At the checkout counter, parents can have children count out the money needed for their purchases, as well as take part in the transaction.
4. Needs vs. Wants
This is a place where my grandchildren struggle. They feel that every want is a need. I have to constantly explain to them that just because they want something does not mean that they need it. One of the basis for good money management skills is the ability to distinguish between wants and needs. For example, people need food to survive, but children want a new toy or video game. This will build the foundation for appropriately managing finances as an adult and help kids learn to appreciate saving money for items they want.
5. Build A Budget
Explaining the difference between wants and needs to children can be tough. To help with this, have your child sit down with you as you create your monthly budget. Explain the purpose of accounting for all your monthly expenses and financial responsibilities first, and then see how much money is left over to save or to make the purchases you want. Parents can also help their kids create their own budget. Even though they don’t have many expenses, it is good practice for the future and allows them to see where their money goes as they spend it.
We all want our children to do well in life, and part of that hinges on them being able to effectively and appropriately manage money. If you aren’t teaching your kids about personal finance, now would be a great time to start.