With nearly two thirds of Americans lacking basic financial knowledge, now more than ever, there’s a need to equip our children and teens with basic financial literacy skills so that once they leave the nest they understand how to save for a goal, manage a budget, and plan ahead. Since children as young as seven years old have already formed their initial money habits, these skills are all the more important.
Teaching kids basic financial literacy at a young age provides the opportunity for them to learn, develop and strengthen their life skills to become financially capable adults. In fact, kids as young as five years old are able to understand the basic idea of saving versus spending. These life skills build stronger families and communities across Maryland by helping your child grow into a young adult with a strong financial understanding.
While it’s helpful to begin sooner rather than later, with open communication, praise and examples these are skills you can work to develop with your child at any age.
5 Tips for Teaching Your Child About Money
Understand Wants Versus Needs
Being able to determine what is necessary to have versus what is nice to have is the baseline of making good financial decisions. Highlight that after basic needs are met, fun expenses such as a new toy or a family vacation can be considered.
Show Opportunity Cost on Purchase
Help kids to weigh decisions and understand possible outcomes by explaining that money used for one purchase won’t be available for another purchase. For example, when grocery shopping, have children choose between two fruits, explaining there is not room in the budget for both, so they must choose wisely. If your child is older, the example you offer your tween or teen might look more like having to choose between enjoying a new pair of kicks they have their eye on or a trendy new outfit.
Display How Money Grows Over Time
Using a piggy bank to save money is a great way to start the conversation and the act of saving with younger kids. Consider using a clear jar to collect their savings so kids can physically see the money grow, and become increasingly more excited.
Make Smart Money Choices
In addition to the clear savings jar, add two more jars: one for spending and one for sharing (or donating). Each time your child receives money – whether from chores, a part-time job or as a gift, have them divide the money between the jars (i.e. between saving, spending and donating).
Teach Patience and Instill a Habit of Saving
Encouragement and ongoing communication are key. Motivate your child to save regularly. Monitor their savings. Each time your child adds to their savings, help them count how much there is, how much more is needed or how close they are to reaching their goal, and what they can do to continue working towards that goal.
These five basic principles are a starting point. Parents can then reflect on any gaps they may have had in their own financial education, and use those as discussion points to build upon these principles. Parents also serve as real life examples, modeling behaviors for how to spend and save. While there may be initial reluctance or anxiety to begin these discussions, avoiding the subject altogether can often lead to poor financial decisions in the future once your child is grown.
“Teaching your children about money at any stage is going to take time on your part,” explained Sarah Ryan, head of community outreach at SECU Maryland. “It won’t always be easy. But if you want your children to know how to successfully manage their money when they get older, taking the time now will be worth it.”
Join SECU for an Online Children’s Concert!
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SECU, Maryland’s largest credit union, serves 260,000 members across the state. As a member owned, not-for-profit, SECU puts its members first. Membership is open to all Maryland state employees and their families, University System of Maryland students, graduates, staff and their families, Bank At Work partners and many others. Headquartered in Linthicum, Md., SECU has 22 financial centers and provides access to nearly 50,000 free ATMs through the CO-OP network. With $4 billion in assets, SECU ranks among the top 60 credit unions nationwide based on total assets in the U.S. Insured by NCUA. For more information, visit www.secumd.org.