Today, the financial landscape is a highly complex one. As parents, it is our job to equip our children with money management skills that are strong, productive, and will serve as the building blocks of success in finances. It has been found that this is one of the most valuable of gifts that parents may give to their children. We must solidify these money-related skills early. Most recommend by the age of 7. This is because there are several core attitudes towards money by this age. Examples include whether the child has developed certain spending tendencies and/or displaying a level of thriftiness. This is typically independent of parental influence.
A study from the University of Cambridge study made a direct reference to resources in the way of financial education. The study established that early impressions from birth to 7 years of age are very difficult to reverse at a later time. This means that practical-based involvement of the parents is absolutely crucial to a child’s overall financial success as they learn and grow into their teenage years and forward into their adult life.
When starting financial education, it should start in the preschool years. This aids in the development of independence and has been attributed to yielding benefits to the child on a long-term basis. Children that have a high level of financial literacy are known to be a person that saves money on a regular basis and successfully avoids high-interest debt. These children grow into individuals that accumulate emergency funds, and achieve a high level of financial-based well-being as teens and adults.
This particular guide pulls from several literature pieces that focus on how to bestow financial knowledge upon children. The strategies that will be presented in this guide come from White Coat Investor, the FDIC, GoHenry, and Parents.com. The information contained within this guide are strategies that are backed by strategies that have been proven as successful in research studies. Parents and Guardians do not require any type of degree in finances in order to effectively teach their children. The universal habits outlined in this guide are tools and steps that help in making learning about money fun and exciting.
The steps that you take with your child should be integrated into daily life. For example, you can turn trips to the grocery store as learning experiences. Additionally, those bedtime stories that you share with your child can be turned into talks about budgeting and saving money. You, too, must model consistent and sound financial strategies in your life as your influence will be one of the biggest and most solid remodels of all time. Kids are known for copying the attitudes that their parents have towards money. By the time that your child becomes a teenager, they could have investments in a portfolio, may be budgeting as they work, and may be taking the steps to ensure long-term financial success.
Why Money Habits Form Early and Pay Off Later in Life
You may not realize it, but the brains of children are wired to learn rapidly in their early years. By the age of about 3, they are able to grasp certain basic concept like making decisions on whether to spend their money, or save it, as well as making exchanges. These concepts will reflect lifelong patterns. There are certain milestones that must occur in a developmental manner that increases financial aptitude. These milestones will also help in the development of executive function such as financial knowledge, the growth of social skills, and targeted types of interventions may be used in financial affairs.
It has been determined that long-term return on investment (ROI) is highly profound. If a child is educated early in life on financial matters, they will have less amount of debt throughout their life, retirement savings will experience an instant boost, the confidence to make decisions in finances is optimized, too. The early education helps in the progression of building skills in money. This starts with basic coin recognition in preschool to investing details during the high school years. Lower levels of stress will be endured as the child grows in finances, the more that they know. If you start teaching your child now, you will avoid common pitfalls like impulse buying, financial scams, and will be able to teach important values – such as generosity. True money habits are not innately developed. They are taught through the means of repetition.
The Basics and Awareness
The foundation of financial understanding starts with a foundation of the basics and awareness. In the toddler years, it is important to understand that children mostly learn through observation and playing. You need to teach the child that money is a tool that can be exchanged for other items, for counting, and for delayed forms of gratification. Consider integrating the following activities with your child from birth to 6 years old:
- Trace and color coins, play “store” with items around the house, and develop commerce understanding by teaching your child that we exchange money for items such as food.
- Sort coins by their size and their color. Play number games to develop a solid understanding of addition and subtraction.
- Discuss the topics of wants versus needs. Clip coupons, look for special deals in the stores that you visit together, Practice the “wait and save” method for treats and “wants”. Give the child a set amount to shop with so that they may understand the concept of scarcity.
- Start giving the child an allowance. Discuss safe spots to save money, such as the bank or a piggy bank.
The following activities are perfect for kids aged 7 to 12:
- Teach the value of money and review the concepts of wants and needs. Tie in chores that your child is responsible for to pay. For example, taking out the trash each week is $1.00. When shopping, compare prices and set money goals.
- Teach the child to budget with the 50/30/20 rule. Save 50%, Spend 30%, and give 20%. You may want to open a savings account for your child. This will allow them to watch interest grow their money. You should factor in lessons on budgeting, investing, and giving to charity.
- You should teach your child about ads and scams that relate to money and how to recognize them. You should discuss the concepts of smart shopping discount apps, haggling, and similar concepts.
- Be sure to monitor peer pressure. Saving is best when compared to showing off purchases. By the time a child is 12 years old, they should be budgeting the allowance that they receive in an independent manner.
The activities below are appropriate for kids that are 13 years old, plus:
- You should start explaining the cost of living, investing, and teaching your child about household bills. It is important to cover the topics of stock simulators, risks and rewards, earning, spending, borrowing, saving, and protecting.
- Around 15, it is time to learn about jobs, credit cards, secured cards, family contributions, emergency funds, Roth IRA matches.
- By 17, it is time to outline credit reports, loans, credit scores, student loans, and other types of investments.
Universal Financial Strategies
The following outlines strategies that may be used with people of all ages:
- You should model a high level of excellence by paying bills on time and openly. You should avoid purchasing in an impulsive manner. Kids inherit our habits – we need to make sure that they are good habits.
- You should create a “family budget” where everyone chips in and regularly hold family meetings that explains where the account is, what it will be used for, etc. The same holds true for emergency funds for the family.
- You should encourage everyone in the home to give to a charity or to the church. It is advised that you encourage everyone to give a minimum of 10% to 20% to give their share.
- You should encourage everyone in the family to void common pitfalls, no chores for basic pay, and no cash over the use of cards.
- You should take your normal routines and integrate studies pertaining to finances in order to teach your child various concepts.
How to Overcome Financial Roadblocks
When teaching your child about finances, it is important that you educate on the topic of resistance. You may use apps to help with this and then praise the overall efforts of your child. You may use a journal tracking system or an app that tracks spending. Research has confirmed that kids who grow into adults who have been taught finances by their parents have up to a 30% higher savings rate when they become adults than kids who did not have that training.
If you want help teaching your child about finances, we here at Somerville Bank can help you. We offer a wide range of financial services – including savings accounts, mobile banking, and other financial services. Simply meet with us at one of our many locations. You may find them by visiting the following link: https://somervillebank.net/
Somerville Bank has 8 Locations