Financial literacy is an important skill set that children need to make sound money decisions later in life. Unfortunately, one in five 15-year-olds in America lack basic financial knowledge, according to the Program for International Student Assessment. In order to get your child up to speed, here are five suggestions for teaching them about money:
Teach the Value of Saving
Your kids probably won’t understand how money saved over a long period of time has the potential to grow. You can show them by creating a way to pay interest on the money they save. Seeing how a penny saved is a penny earned is an excellent way to demonstrate how investing works, and more importantly, how saving money benefits them in the long run.
Explain the Realistic Value of Money
$500 will seem like $500 million to kids, because their perspective on money is much different than an adult perspective. Teach your children how much money is actually needed to run a household. When it comes to explaining the realistic value of money, try speaking in percentages instead of dollars to make finances seem tangible. Teaching your kids about money management is a long-term commitment. The comments you make and questions you answer over time will have an impact on their outlook.
Discuss Needs vs. Wants
Needs are items we can’t be without, such as food, water and a home. Wants are things that we’d like to have, but aren’t required for survival, like a bike or a piece of pie. For children, separating needs and wants can be difficult, but it’s a good skill for them to learn. First, discuss what would happen if your family spent an entire paycheck on something fun like games one month and there was no money left for food or electricity. Explain that even though buying lots of games would be great, you must have money to pay for needs, like food, first. A good way to help your children distinguish between needs and wants is to discuss specific items while you’re out shopping. Ask them to point out items that are needs or wants as you walk through the aisles.
Encourage Delayed Gratification
Practicing patience will help children cultivate self-discipline for saving money when they’re adults. You can help your kids develop this skill by not purchasing every item they ask for. Make them wait. Set an example by avoiding your own impulse purchases and explaining why you aren’t buying something you like until you save money for it. Encourage children to think through purchases. They should ask themselves whether they must have something immediately or can wait and have it later.
Utilize Apps for Spending and Saving Lessons
There are many apps for smartphones and tablets that can help explain financial concepts to children in ways they will understand. Try Savings Spree (for kids ages 7), which offers engaging, fun and educational activities. It’s easy to use and teaches kids about earning, spending and saving money. Savings Spree also explains concepts such as charitable giving and investing. Another quality app to consider is Renegade Buggies (for kids ages 6+). This is a dynamic shopping game that teaches kids about financial literacy. It focuses on saving while at the grocery store, and offers kids smart consumer strategies.