Our children see us order something new from Amazon. A few clicks on the computer, and it arrives in two days. They watch us insert a card into a machine at the store and we take home whatever we wanted. Then there are those ATMs at every turn ready to disperse cash with a magic PIN.
Adults know how difficult it can be to earn money. Still, our children see that easy access and often assume that making money is just as simple as pushing a button.
By age 3 your child understands basic money concepts. By age 7, many of their money habits may already be set. Talking to your children about money through this window and beyond may give them the insight they need to become more savvy consumers later in life.
Children (and most adults) Are Tempted by Toys
Even though Netflix, Amazon, and Hulu are mostly ad-free, kids still see plenty of advertising messages in other mediums. They are heavily influenced by marketers and by what their friends say, buy, and do. Have you ever heard of FOMO?
Teaching kids money skills and concepts as they express a desire for toys can help introduce them to valuable life lessons. Saving for that new shiny toy will help to instill a sense of delayed gratification. Everyone should learn how to live within their means and understand how to budget for larger ticket items.
Teaching Children the Value of Money
Teach the Basics
Ensure that your children understand and can identify what various coins and bills are. As they develop their math skills, they should be able to count out change. They can practice while they run their lemonade stand. The ability to provide change without the aid of a cash register is a skill that can be valuable throughout a child’s lifetime.
Explain How Money Works
Help kids understand the order of money. Money has to be earned before it can be spent. It requires time, work, and effort. Deposits need to precede withdrawals. There’s a reason Amazon makes it easy to buy in just one click. The less time you take to consider your purchase, the more likely you are to make an impulse buy and potentially waste resources. Kids should know there’s no magic money tree or printing press in the backyard.
Offer a Small Allowance
Children are not too young to learn that their time and work have value. A small allowance teaches them what it’s like to put in a specific amount of work for the goods that they purchase. Showing them how to set some of it aside for saving starts them off on the right foot. When you are shopping, let them know that purchases need to be within a specific price range and why. The next time they express interest in a particular toy, help them work through the decision-making process together. Paying with their own funds gives them a first-hand experience of managing cash flow.
Help them To Understand Saving
When your child wants a new toy that costs more than they currently have, it offers another good learning lesson. In order to get what they want, they’ll have to save over time. That means no spending money in the interim. It means having patience and understanding that the sacrifices you make today can pay off tomorrow. This mindset can help them greatly when it comes time to save for cars, homes, or retirement later in life.
It’s Never Too Early to Start Saving for Retirement
Once your child starts earning some money, they should start saving for the future. It’s never too early to have the chat about how retirement looks and how today’s earnings will support your future self! Have them start by putting aside 10% of every dollar earned and explain how time will be on their side. Parents, if you have the funds, help them get more bang for their buck and help them fund a Roth IRA.
Start teaching your kids good financial habits NOW
Proper money management reinforces math skills and complex concepts such as delayed gratification and cash flow management. Take the time to teach your children about the value of money. Explain why you chose that new Toyota instead of a Ferrari, even though you may have had enough money- and they are super cool looking! Walking them through your process will allow them to begin to see the light. Starting these lessons early gives them a gift that will pay dividends (and interest) for the rest of their lives.