Shockingly, most schools don't teach children about how to save money, create a budget, or make smart financial decisions. Odd right? These financial skills are critically important to be able to navigate life. Since the school system doesn't teach these skills, YOU will need to educate your children about the personal finance issues they will need to live a financially secure life.
So, what do they need to know?
1. Where money comes from
Money can be a mystery to children. Most of the time they see money coming out of an ATM and don't understand the source of that money. Of course many parents offer their children a weekly allowance for chores or random tasks and this actually works quite well. The child equates performing work to earning money. Chores also teach the child about worth ethic and managing the allowance money that they receive.
2. When It’s Gone, It’s Gone
This can be hard to do, but, as a parent you should let your child fail on occasion. Teaching your child about saving money is one of those times, as it will teach them to hopefully save money for the future. By letting the child spend their allowance money on whatever they choose, they hopefully learn that once that money is spent, it's gone and is unavailable to use for other purposes. See something you like and want to buy it? You need to have earned an allowance, and not spent the money elsewhere. This portion is all about teaching your children that making choices with their money is something that they will need to do their whole life.
3. How to save for a large purchase
Sometimes your child will want something that is more expensive that what they earn from a single week of doing chores. This is a great time to teach them how to save their money. You should sit down with them with plans of how much money they need to put away and how long it will take them to reach their goal. Want a new bike that costs $100.00 and you “earn” $5.00 per week? Well little Johnny, you are going to need to save for 20 weeks. Delayed gratification is a wonderful thing to bestow upon your child so they don't have expectations of things coming easily. If you have the time, you and your child can create a chart that shows the goal, and the saving milestones along the way. Hopefully this gets them excited about watching their savings grow.
4. Being Content
We live in an age of consumerism so we think we have to have the newest items and the latest trends. This can be hard on the wallet. Choosing to be content with what you have, and what you can afford, can be a hard lesson to teach. A wise person once said that “There are two ways to be rich—one is to have everything you want, and the other is to be satisfied with what you have.” This idea of being content with what you have is a daily battle. You should remind yourself and your child every day to do thankful for what you have and to stop comparing yourself to other people. Learning to not try to “keep up with the Joneses” can't be taught too early in life.
If you teach your children these four key principles you will have taught them more than anything they will learn in school.
Jason Hessom is the founder and editor at FinancialSumo.com which is dedicated to teaching people to how to earn more money, save more money, and make wise investment choices.