Blog post contributed by Virginia Cooper of www.learnaliving.co.
The best time to start teaching your kids financial literacy was yesterday, but the second best time is now. Managing finances, like most important skills, requires time, practice, and mistakes to master. It would be unrealistic to expect kids to grasp complex financial concepts at a young age. However by providing them a safe environment to experiment and learn about the different ways of earning and spending money, you will create the bedrock for them to become financially savvy adults.
This guide from Happy to Homeschool explores the importance of teaching children financial literacy from a young age and how you can go about it.
Let Them Earn Money
The best way to teach kids how to value money is by making them earn it. Earning their allowance will help build a sense of pride in their effort and make them mindful of how they spend their hard-earned cash. While house chores are a good place to start, encourage them to venture beyond and tap into their entrepreneurial spirit for finding more ways to earn.
School vacations are a great time to help your child launch their business. Provide them with various options such as lawn mowing, arts and crafts, baking, etc. Being digitally savvy as kids are nowadays, they can even run an online business via social media.
Help them to hone in exactly how they will finance their business. Advise them to create a budget including how much they have in savings compared to expenses. Using existing savings, i.e. bootstrapping, is a popular financing source used by budding entrepreneurs in the industry as well.
You can also teach your child how to make a simple business plan and pitch their idea to family members, a.k.a. investors, to generate more funds for their business. During this process, let your child do most of the legwork and provide them assistance only when necessary.
Familiarize Them With Digital Money
According to research, the use of electronic payments has consistently increased over the last decade and will continue to do so for the foreseeable future. As a result, it is important to teach kids good habits relating to digital transactions.
While cards make transactions seamless, it reduces the unease which comes with physically parting with money. For instance, realizing their wallet is near empty while paying at the store may hinder kids from spending more, but with cards, it’s easy to lose track of expenses only to suffer later.
In this case, providing your child a credit card is advantageous, as you will receive a bill each month, making it easier to teach your child the following tips:
- Credit is borrowed money that needs to be paid back in a set amount of time.
- One needs to have a repayment plan. Hence, it is important to spend within means.
- Repaying on time helps to build a good credit score which is a must-have financial goal.
Start Your Own Business
Children learn best by example, so if you’ve ever thought about starting your own business, why not keep your kids clued in to what you’re doing and turn it into a valuable lesson, as well? You can start by showing them how it takes a little planning to generate the necessary revenue, as well as the discipline it takes to keep all your bases covered – including networking, which requires friendliness as well as clear communication. You can even play a game in which you present certain tough business situations (ones you might actually be facing) and ask for their input.
Teach Them Basics of Homeownership
According to research, 80% of individuals aged between 24-39 years cannot afford a home due to a lack of savings and financial security. As any adult knows, the path to homeownership starts years before even looking at houses, with incremental savings, investments, and a financial plan.
Teaching kids about long-term planning and building credit covers a couple of important aspects of homeownership. In addition, focus on educating your child about the following:
Savings: Save at least 20% of your earnings. Once you receive your pay, first put money towards savings, next spend on necessities and lastly manage your wants with what’s left.
Taxation: When making budgets, it is important to consider taxes as it’s an expense one cannot ignore. Two important types of taxes kids should know about are:
- Income taxes which they will automatically pay on receiving their paychecks. The amount will depend on the percentage of tax levied on their income.
- Property taxes which they will have to pay annually based on the value of their home. It is calculated by multiplying the home’s assessed value by the presiding tax rate.
When it comes to teaching finances to your child, focus on remaining consistent with your efforts. Regularly talk to them about finances, educate them on new concepts and encourage them to put their knowledge into practice.
Hi, I’m Charlotte! I’m a veteran teacher turned homeschooling mom of 4 with a passion for education at home! I have a Ph.D. in Educational Psychology and I created Happy to Homeschool to motivate and encourage you in all steps of your homeschooling journey. I am looking forward to hearing your comments, questions, concerns, or anything else you want to share!