“Economics is major, everyone should major in it.” Jim Rohn. We cannot deny the Importance of money. It ranks up there with oxygen.
I don’t know about you, but no one, yes that’s right no one taught me about money management,
i learnt it still learning the hard way.
I already started teaching my children about money management, to help them be more prepared with the huge responsibility money carries with it. Money experts recommend teaching preschoolers about money.
It is important to have learn the proper balance between expenses and income from an early age.
Let’s keep it real here shall we? You need good insurance coverage or a good job, or good financial resources to get good medical care in the United States. You even need money to afford a decent burial.
Many aspects of our lives like jobs, health, savings, investments, mortgage/rent revolve around money, its management and the decisions made affect lives.
Parents usually talk to their children the dangers of early sex, unplanned pregnancies, alcohol and drugs.
There are various preteen, teenage and youth groups in churches and communities, that sensitize the children about the dangers of the above.
However, there are not many communities/groups that teach financial planning for kids.
In school, reading, writing and structure are fundamental aspects; personal finance and saving money is usually neglected.
Many children find out about the importance of money management on their own, usually in college/university, many of them after they have taken up student loans and credit card debt with higher interest rates.
In today’s world where online banking and shopping, credit cards are the norm, it is harder for the children to understand the price of things.
In this post, you will learn a few ways on how to teach your child financial responsibility.
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How to teach your child the value of money
The concept of Compound Interest
Albert Einstein said the Compound Interest is the 8th wonder of the world. Teach your children how it works.
- Let’s say you have $10 ( this is your principal), it earns 5 percent once a year(compound Interest) After the first year, the child would have $10.5 – his $10 as principal, plus the 50 pennies or 5%.
- The following year, the child would have $11 because the next interest payment of 5 % will be 50 pennies. Illustrate the Compound Interest concept with clear jars, one with principal, the other with money that has accumulated interest.
- Explain to the children that by keeping money in the bank, the bank uses our money for other purposes, like loaning to other people. The bank charges higher fees on the loans.
The bank pays interest as a way of thanking the customer for letting the bank use their money.
In this CNBC post Mr. Kevin O’leary talks about how he taught his children the concept of Compound Interest. Who grew up to be good investors.
How to make passive income as a kid
- Many parents teach their children to study hard, get good grades and eventually a good job. All the above are very important.
- They seldom talk about investing from an early age. I figured this out myself. You can not accumulate wealth from a savings account, investment account is the way to go.
- Teach them everything from balancing a checkbook, budgeting, and investing for retirement.
- Teach the children about investments, stocks, mutual accounts, bonds as early as possible. Introduce your them to kid friendly mutual funds. I believe it is called working smarter, not harder.
Consequences of not budgeting
- I think most of us have had this conversation with our children. “no we can’t afford that right now, just get more money from the bank.
- Ask your child to remove some money from the clear jar. Explain that this reduces the money in the jar, meaning that they now have less money in the jar.
- Write down the balance a piece of paper give it to the child as a receipt.
- Make the children aware that they can’t buy stuff based on how much they have in the jar. Encourage them to save their money before making a purchase.
- This helps them avoid impulse purchases they would otherwise regret when the novelty wears off. Tape a picture of the desired toy/gadget on the jar as a visual reminder of the goal.
- Saving should not go on for many months, this can make them lose interest in saving all together.
- I think there should be a balance. Moderation is key. Some people regret not enjoying their money while they still could.
- Sacrificing to make savings became compulsive, some ended up passing it on as inheritance, for others, the government took it.
Good Budget Software To Manage Your Finances.
How to Drastically Cut Household Expenses
Children learn about net worth, checking accounts, monthly fees, high yielding savings accounts, living expenses, annual fees, investments, stocks, bonds etc.
They learn the value of money, while having fun. Below are some of the best board games that involve money.
This game teaches children valuable money lessons while they try to race to the finish line.
Customer promising review:
My 7 year old played this game at school and really liked it. I bought it for reinforcement of counting money at home in a fun way, and he still enjoys playing it. There’s no skill other than counting money involved. You move forward, count the amount of money the space indicates ………nikkibo77
Check out the current price on Amazon.
With this game, kids learn how to live from payday to the end of the month.
I was looking for a game for my girls and I so I could introduce them to the world of finance. There’s budgeting involved for paying bills, loans including interest, basic household expenses, gambling (lottery and sweepstakes, which introduces risk vs. reward). My favorite line of the game is “I can’t buy that. I don’t have enough money and I don’t want to take out a loan”. Success!! It includes the critical thinking and strategizing I was looking for that I didn’t find in Monopoly Jr (Regular monopoly might be our next game to try). Alex
Check out the current price on Amazon
This game is competitive, and a more than a little addictive. It will teach kids to be wise with their financial decisions in life.
Love this game! So interactive and unpredictable. This is great for a bigger group of people and only takes a few minutes to teach newbies. You definitely can employ strategy in this game but that being said new players can win too. Our teenage kids loved playing it over the Christmas break and when we introduced it to the larger family at our Christmas gathering they loved it too! The part I love best is that its really interactive with the other players and everyone gets into it… after all none of us like getting stuff stolen from us… until we get to steal it back! J. Friesen
This is a perfect game for teaching your kids to identify money values, add & subtract money etc.
Check out the current price on Amazon.
Connection between ATM & Savings Account
Explain to children while at the ATM that money comes from your bank account; you earned it through hard work and maybe saving.
There will be less remaining money, every time money is taken from that account. This way children understand ATM is not just a hole where they can to get money.
- Involve the children in the home finances, pre-planning, shopping. Compare the prices of different things as well as looking for great deals together with the children.
- It gives them a picture about how much money the family spends every week, this in turn gives them an insight about the costs of family life.
- Let the children be involved in family financial goals, it unifies the family. Saving for a home remodel or saving for a vacation.
- Be a good role model, show them why bills need to be paid on time, and how debt affects quality of life.
Have a discussion about the desired goal, and the changes that will be done to achieve that goal.
- How is this goal beneficial to the children?
- Explain to them why they need to be on board
- Celebrate milestones together as a family.
- How can they help towards the said goal? I.e less take out food & packed lunches.
- Appreciate even their smallest effort towards the said goal.
Money management activities for the youth
- I learnt this concept from Jim Rohn; I wish i had known this concept earlier.
- For every dollar earned, children should spend 70 cents. Put 10 cents in a savings account, another 10 in an investment account, and the 10 donate to charity/church of their choice.
- Giving back to the community boosts self esteem when children realize that they can make a difference in other people’s lives.
- They will eventually learn that the act of benefits both the person who is being given and the giver.
- It is a good idea to help your preteen open a savings account. Banks, Credits Unions and other licenced financial institutions offer children’s accounts.
- It is possible to open one with zero or only a minimum payment. Children’s accounts are easy to use, usually have little or no charges except for annual fees and pay higher interest.
- Your child will move their savings from the jar and allowance money to the account. Give them smaller money denominations that encourage saving.
- For example instead of giving out a $5 bill, give them five $1 bills. This encourages them to set aside savings.
- Teach them to safeguard their personal information like social security number and avoid using their ATM card in another bank to avoid charges.
Say no to credit cards
- The borrower is slave to the lender! Teach your child that simple phrase. There are literally tempting credit card offers everywhere. Make the kids aware of the reasons why credit cards are bad. Credit cards have higher rates, additional fees & low minimum payments.
- Failure to make payments on time results in more interest, and damages credit score. It is a vicious cycle.
- Show older children how credit reports work, what is included in credit reports and the impact of that information on credit scores.
- Show the children your personal credit report, this helps them understand how good or bad past financial decisions can impact credit reports.
- Credit reporting companies send a copy of your credit report to the banks and other financial institutions. This determines whether one will be able to get mortgages in the future.
Money making ideas for teens
- Children from the ages of 14 can find a small job. From shoveling snow, mowing lawns, washing cars, selling cookies in the neighborhood, to selling old stuff around the house.
- This gives them the responsibility of managing their money, preparing them for larger amounts of money later in life.
- Parents, we walk the talk; many children follow in their parents’ footsteps. Be honest about your earlier bad financial decisions, the impact it had on your life.
- Children will appreciate the honesty and learn not to overspend. See my earlier post about handling finances.
- Parents are the biggest role models to children, teaching children the basic things like how to budget, save and how to invest, can make a good foundation about their finance habits.
In what ways have you taught your children money management? Share with us in the comments section.