Financial Literacy
We want to set our children up for success in every aspect of their lives, but financial literacy is an often-overlooked subject. Teaching kids about money from a young age can help them develop healthy financial habits and make informed decisions later in life. This guide may help you think through ways to simplify financial literacy for kids and provide practical tips on how to talk to your children about money.
Financial literacy is important for kids
Financial literacy is the foundation for making sound financial decisions. By teaching kids about money early on, we equip them with the knowledge and skills they need to navigate a complex financial landscape as adults. Building a strong foundation in financial literacy sets kids up with:
Financial confidence
Knowledge is power. When kids understand basic financial concepts, their confidence in money management grows. Learning about budgeting, saving, and investing fosters a sense of control over their financial future. This confidence will serve them well throughout their lives.
Healthy financial habits
Teaching kids about money instills healthy financial habits from an early age. Kids learn the importance of saving, budgeting, and making informed spending decisions. These habits lay the groundwork for a secure financial future.
Abilities to identify financial traps
Financial literacy helps kids recognize and avoid common financial pitfalls. Learning about the consequences of excessive debt, the importance of credit scores, and the risk of impulsive spending, empowers them to make responsible financial choices.
Entrepreneurial spirit
Financial literacy helps kids think creatively and develop an entrepreneurial mindset. Kids can learn about the value of money, the concept of earning and saving, and the potential rewards of starting their own businesses. This may inspire their future endeavors.
Tips for talking to kids about money
Now that we understand the importance of financial literacy for kids, let’s explore some practical tips for talking to kids about money. Engaging in meaningful conversations about finances could empower them to make wise financial decisions.
Focus on the basics
Financial education can begin at a young age, even as early as three years old. Start by teaching your kids basic concepts like why we pay for items at a store, the different ways we can pay for things, and the idea of sharing and trading. By introducing these concepts early on, you set a strong foundation for future financial discussions.
Understand needs vs. wants
Having a conversation about wants versus needs is an effective way to discuss money with kids. Children can typically understand the differences between essential items and things that are nice to have but not needed. This can help illustrate the value of money for them and inform decisions about their own spending. Take the opportunity to discuss your own decision-making process when it comes to balancing needs and wants.
Instill a work ethic
Kids may not fully understand why grownups have jobs or what it takes to earn money. Explain to them why you work, why it’s important and think through what type of job they may like to have. Ask them how much they think they could earn for their work. This conversation is not about complex financial concepts; it’s about instilling the value and benefits of work and responsibility.
Spend, Save, and Share
Break down the concepts of spending, saving, and sharing into simple categories that your child can understand. Discuss the idea of budgeting and explain how money is allocated for different purposes. It may be helpful for kids to receive a small allowance to divide into spending, saving, and sharing categories. This hands-on experience is a great first step into the basic principles of money management.
Encourage independent learning
Teaching money to kids doesn’t have to be limited to formal discussions. Encourage learning about money through real-life examples and experiences. Support their entrepreneurial endeavors, such as running a lemonade stand or participating in school fundraisers. These activities allow them to handle money and learn from their own successes and mistakes.
Learn together
If you feel less confident about your own financial knowledge, embrace the opportunity to learn alongside your child. Take the initiative to educate yourself about financial concepts and share what you learn with your child. You can explore online resources, attend workshops, or take a class together.
Make financial education count
Teaching kids about money doesn’t require advanced financial knowledge. Focus on the basics, encourage independent learning, and have open and honest conversations. Remember, it’s never too early to start teaching financial literacy. By investing time and effort into their financial education, you are setting them up for a brighter financial future.
This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.
