Developing financial literacy in your kids at a young age can have a major impact on their financial success as an adult. But unless you know for sure that your children will receive a good financial education during their K–12 years—and studies show it’s likely that they won’t—it will be up to you to teach them the key money lessons they’ll need to be financially literate adults.
In this article, we’ll look at some of the most important things you should teach your kids about money.
What You Should Teach Your Young Children about Money
You might think teaching a seven-year-old about money sounds odd, but researchers from the University of Cambridge in the UK found that by age seven, children are cognitively equipped to learn about basic financial concepts and form money habits. It’s not enough to just lecture them about finances though.
“Research shows that children develop financial and economic understanding when they have ‘personal economic experiences’,” the researchers wrote. “If parents support and model specific decision-making, children are likely to engage in the behavior and potentially develop similar habits.”
In other words, get your young children involved with some hands-on financial decision making. Here are a few important practical lessons you can teach your youngsters:
Explain that money must be earned. The best way for kids to learn the value of money is to earn it themselves. Giving them some chores to do each week and rewarding their work with an allowance will teach them the value of a dollar.
Teach them about saving, spending and donating. Once your kids start earning an allowance, use the classic three-jar system to teach them about how they can use their money. Divide their allowance among three jars labeled “save,” “spend,” and “donate.” The saving jar is for bigger purchases. The spending jar is for small, regular purchases. The donating jar is for teaching children the importance of giving back.
Show them how to set goals. That saving jar will be very important for teaching kids about the importance of delayed gratification and tradeoffs. If putting less in the spending jar now means more goes in the saving jar, they’ll be able to afford bigger purchases faster. Let your kids set these goals and decide how to best reach them.
Involve them in your own financial decisions. When you’re budgeting for your weekly trip to the grocery store or planning for a major purchase, have your child join you throughout the decision-making process. You don’t have to give them every single detail about your income, but letting them ask questions and be a part of the process will be a powerful teaching opportunity.
With the research pointing so strongly to a correlation between early financial education and positive outcomes later in life, it’s never too early to start teaching your kids how to manage money. Teaching them these invaluable lessons when they’re young will give you peace of mind knowing that they will be financially responsible adults.
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