Money talks: teaching kids the language of finance.
Photo by cottonbro studio
So many parents are asking how soon they can start to teach their kids about money. The truth is you can never start too early. Some parents go as far as to start stock trading for kids to ensure they have a bright future. Doing something like this isn’t a bad idea, as you can teach your kids about finance by investing in the stock market.
As parents, you influence how your children deal with money as children and later when they become adults.
Why is financial literacy important for kids?
Financial literacy is essential for kids because it’ll equip them with the knowledge and skills to survive as adults. Children well-informed about money matters are more likely to grow into adults with a good grip on their finances.
What are the basic concepts of money management?
The four main elements of money management are Income, Investing, Saving and Spending. So how can you teach your kids these things without boring them? You can use fun, exciting ways to teach your kids about finances – by making it a practical exercise.
How to teach your kids about investing?
When your kids are young, you can learn about trading stocks and shares by creating a dummy online account. You can use many different tools, such as a kid’s app, for investing in interactive games and lessons. Each option will keep your kids entertained and help them learn something that will serve them for life.
Teaching your kids about income
Your kids should understand everything about income management. You can teach them this by giving them a weekly allowance. Doing this will allow them to learn about money management from a young age.
Teaching your kids about saving money
You can teach your kids about the benefits of saving for long-term goals in many ways. For example, saving for the future and not having any plans for spending the money saved. Having a piggy bank dedicated to saving for the future and then taking them along with you to the bank to deposit the money every time the piggy bank is full.
Teaching your kids about spending
When you give your kids a weekly allowance, they will have plans on what to spend their money on. You can teach them to manage how much they spend from their allowance money and put them on the path of tracking their expenses by introducing them to budgeting.
How to introduce kids to financial terminology?
Research shows that having conversations about money with your children will help build their confidence and financial skills.
As you have conversations with your kids, you can teach them the following things:
- Long-term and short-term savings.
- Expenses and managing a budget.
- The power of investing and compound interest.
Practical ways you can introduce kids to finance terminology
You can give your children the responsibility of saving and spending money and make it a fun activity they do at home.
For example, you can start with a piggy bank – giving your child a piggy bank will introduce them to savings.
They will know to refer to their savings when:
- They want to make a significant expense.
- They want to boast about how much money they have saved.
You can also help them to understand the following things:
- The balance of the money they have saved and what they can buy.
- How much is needed to save to reach their savings goals.
- The difference between wants and needs is that they can prioritize their savings towards an essential need.
What are some fun ways to teach kids about saving and budgeting?
There are many fun ways you can teach your kids about budgeting. For example, you can take them with you to grocery shopping – they can also help you get items from your shopping list. When it’s time to pay, have them count the money and ensure they know how much things cost. If something isn’t on the shopping list and they want to buy it, explain why they can’t buy it then and there.
What should kids know about risk and reward in finance?
If you teach your kids about investing, they must know about the risk and rewards involved. Investors understand that risk is involved when investing their money.
Your kids should understand the following things about risk and reward in finance:
- Stocks rise and fall, which means their investment balance will drop at some points too.
- Investing over a long period is better than short-term investments because the money will grow over time.
- Perseverance is a vital trait in investing – as you watch the value of your money fall and rise, it is best to keep investing so that your money can grow over time.
You can teach your kids the power of persevering when saving for a long-term goal. Doing this will also help show your kids the value of saving for something essential and delayed gratification.
How can we help kids make smart financial decisions?
When you give your children a weekly allowance, it empowers them to learn about managing their expenses. If they make mistakes and overspend, ensure that they learn from such things so they understand how important it is to spend within their allowance.
You can teach your kids to make smart financial decisions by allowing them to make mistakes and learn from them. In addition, you can have conversations about money and how to save towards reaching their goals will also help them make smart decisions with their allowance and money as they grow up.
In closing, saving for your kids should be something you teach them through practical tasks, including saving money in a piggy bank, taking them along with you when grocery shopping and much more. When you teach your kids about investing, explaining the core concepts, including the risk and reward element, is vital. Teaching your kids the language of finance can be done right when they are young – you don’t need to wait until they become a teenager.