Teaching Kids Financial Principles
Practical and Easy Ways to Raise Savvy Savers!
The best way to teach children to save is to help them implement it within their own finances. This can be taught starting at a young age!
The principles of sound personal finance are important lessons for a stable financial life. However, many parents do not realize how easy it is to teach these principles to their children. The rule of thumb is that: if a child is old enough to get an allowance, it’s time to start the teaching process.
Basically - the teaching process is broken down into three actions. Once an asset, usually an allowance or cash gift, is received, there are three actions a child can take.
Spending Money
This is the action that most kids take when it comes to an allowance or cash gift. Part of the reason is because this is the most fun part! What kid doesn’t like to go to the local super store, browse the aisles, pick out their most favorite toy and pay for it all by themselves? This action is a great way to teach the concepts of spending less than you make and budgeting, so parents should rarely exclude this step.
Although this may be the fun part, there are two equally important actions to teach.
Give Money
Many parents believe in tithing or giving a portion of their own paycheck to a charitable cause. In the same way, children should be taught that a part of their own cash gifts or allowance should be set aside for charitable contributions. Even if this means the child sets aside a nickel out of his allowance to give away, that one nickel will teach an invaluable lesson to the child. Let the child donate close to home or in a place where he can physically deposit his nickel. This can include the Salvation Army Christmas Kettle, a local church’s offering plate or to purchase items that can be donated locally. Keeping it close to home makes the giving process real for the child.
Charity not only begins at home, it begins at an early age.
Saving Money
Adults regularly allocate a percentage of their paycheck for 401K deposits, stock purchases or a down payment for a first home. Why not give a child the same type of options? Set up a savings account. With your help, let the child purchase some stock or savings bonds. If the child is older, track the interest earned and the growth of the asset. Let the child play with online savings calculators to see what her savings would be in different scenarios. One of the most fun for children is the Millionaire Calculator by CNN Money.
One of the best ways to teach sound financial principles is to set these actions up as a standard in the home. Parents can give the child the allowance and let their child put money in their “give” jar and hand over the “save” money. Implement these lessons early on and the child will be set in these practices as they grow older.
