In 2021, money management and financial wellness are more important than ever. We here at Rain primarily focus on financial wellness for adults, but in all honesty, financial education can be introduced to kids as well, in an easy-to-understand way that will set up your children for financial success later in their lives.
You might be wondering, what do kids need to know about money? Don’t worry, we’re not about to give you a crash course on how to prepare your 12-year-old for their first mortgage or anything like that – rather, we here at Rain are going to go through a few great ways to teach your kids about money, as well as the responsibility that comes with it.
Most Important Things to Teach Kids About Money
Many schools across the world don’t teach financial wellness – so it’s often up to the parents to give these lessons. But don’t worry – you don’t need a financial degree to teach your little ones good habits. Here are some places to start.
Wants vs. Needs (the value of a dollar)
It’s important that at an early age, kids know the difference between wants and needs. Money isn’t an infinite resource, and it should be taught that it should always be spent first on the basics: food on the table, a place to live, an education, and necessities such as toothpaste, soap, etc. Everything else falls under the category of wants – and to a child, that could mean anything from the latest video game console to candy, and everything in between.
A great exercise is to sit down with your kids and make a simple two-column worksheet listing needs and wants – when a child visualizes something, it can go a long way in reaching understanding. In fact, the next time they ask you for something, try asking them if it falls under the “needs” or “wants” column. If it is a “want,” ask if they have saved enough of their allowance to buy it (even if you decide to buy it for them, this is a good exercise)!
How to Save Money and Track Spending
The notion that money can be kept and saved for down the road, whether short-term or long-term, is crucial as far as financial wellness for kids is concerned. A great way to introduce this into their lives is the old-fashioned way: a piggy bank. This enables them to see physically how money can be saved, and although they won’t realize it until they’re older, this will serve as a great primer for having a bank account.
It’s also vital for kids to learn how to track their spending. If your child receives an allowance (more on this later!), having them write down what they spend their money on clearly and concisely will do wonders for their financial wellness – rather than be confused about where their money has gone, you’ll be able to sit down with them and explain step-by-step how they’ve spent their money.
How to Budget
Sooner or later, your child will come up to you for money to buy the next big video game or the newest sneakers – and this will be the ideal time to teach them about how to budget. If they want something and they can’t afford it, work with them to show them that all it takes is a little time and a little budgeting.
Explain how cutting out expenses can free up money for other things that they don’t have money for yet, and watch the light bulb go off in their head that makes them realize that almost anything is possible if you are smart with your money!
For Teenagers: How Credit Cards Work
Don’t worry, we haven’t forgotten about teenagers! One of the most common misconceptions amongst teens is that they think that credit cards are simply “buy now, pay later.” A general rule of thumb is to sit down and go through the ins and outs of your own credit cards with your teen so that maximum understanding can be had and they won’t fall into the typical pitfalls of credit card use that many adults fall into.
Plus, it is important that teenagers prepare to build credit as soon as possible so that they don’t end up in a situation where they are trying to buy their first car or even their first home and they don’t have a long enough credit history to be granted a loan.
For Teenagers: How Loans and Mortgages Work
Many parents would be surprised to know how little their children know about how loans and mortgages work, even as they enter their early 20’s! The key here is transparency – if they have questions, answer them. If they’re near driving age, then it’s an opportune time to sit down with them and explain to them exactly how auto loans are set up, and how they are usually paid back.
The bottom line is this: as your kids get older, they’re going to come across more opportunities for financial wellness lessons, and the more you can teach them when they’re young, the better.
The Best Way to Offer Allowance
Sometimes the easiest way to introduce financial wellness into your child’s life is the simplest way: a no-questions-asked allowance. Maybe it’s a few dollars, maybe it’s ten, maybe it’s somewhere in between. It’s not the amount that matters, it’s the fact that you’re introducing money into their lives that matters. And that’s where you come in.
From the moment you give your kids an allowance, they begin their road to financial wellness. As a parent, you can help them to save, budget, and use their money responsibly. If you can stick to an allowance schedule, this will only prepare them greatly for when they begin earning paychecks, and by then you’ll have already set them up with the tools needed to achieve amazing financial wellness and an adult.
Top Online Finance Lessons for Kids
Thankfully, you don’t have to teach your kids about finance alone. There are endless tools and resources online that can help you make sure your kids are getting the best possible financial education.
The Washington State Department of Financial Institutions has several free online games and activities that give your children plenty of ways to educate themselves on managing money. If you’re willing to spend a little, you can even pay less than $100 to enroll your kids in online classes about money.
How to Set a Good Financial Example for Your Kids
It’s so critical to set a good example for your kids. Be proactive in their financial wellness – don’t assume they’ll “learn about it on their own” or “they’ll learn about it in school.” Help them balance their budgets, help them save their quarters and their dollars, and always be ready to explain to them the value of money. Most importantly, be prepared for questions about finances. Don’t push it off until they’re older. The better of an example you can set now and the more you can teach your kids now, the more prepared they will be to take on the world!
About the Author
Chris Phelan is a copywriter who has taken his own credit score from a 580 to an 850. With a mixture of personal experience and thorough research, Chris can help anyone achieve their financial goals.