Jovan Johnson, MBA, CFP®, CPA/PFS
A famous saying says if you don’t teach your kids about money, somebody else will. Money plays a significant role in every facet of our lives. According to a New Capital One CreditWise survey, 73% of Americans rank their finances as the No. 1 stress in life. However, with proper preparation and education, your children will be better equipped to overcome this statistic. In this article, I discuss 6 ways for you to teach your kids about money. This can help you give your kids the head start in life that you wish you had. Set them up to be in control of their money.
1.) Create a Structured Reward System
It will mean more to your kids when they earn their money instead of it just being given to them. When money is earned, there is more of a sense of gratitude. Don’t just give your kids money. Create a reward system where they can make money based on chores they complete or community service projects they engage in. It is even better when kids can earn money from giving back and serving the community. Not only do they earn money, but also, they learn empathy and compassion.
It is very important to show your children that things cost money. If they want the latest Xbox console, they will have to complete enough chores or other activities to save up enough money. Take them to the store with you and have them physically pay the cashier for the console. This will teach them firsthand that things cost money. If you really want something in life, you will have to work hard and save your money.
2.) Set an Example
Believe it or not, your kids are always watching you. Every single habit that you display in front of them will impact their future decisions. If you and your spouse argue often over finances, you can’t be surprised if your children and their future spouse display the same behavior. Or if you are constantly in credit card debt, your kids may believe that it is okay to pay for things that they maybe can’t afford. It is important to set a healthy example for your children when it comes to finances. Of course, no parent will be perfect when it comes to money; however, it is important to try your best.
3.) Have Your Kids Involved in Some Money Conversations
This tip is often underrated. Many parents believe that money conversations are not age-appropriate for most children. However, I think this is the wrong way of thinking. I believe that there are many money conversations that your children should be a part of as a learning opportunity. For example, if you and your significant other are discussing the household budget, allow your kids to be involved in the conversation. Let them see how they fit into that budget.
4.) Teach Your Kids About Saving and Investing
One thing that I have learned throughout the years is how impactful compound interest is. I wish I would have known the power of investing at an early age. To set your kids up for success, it is very important to begin saving and investing for them at an early age. Whether that is through a custodial investment account or a 529 plan, there are many different vehicles you can utilize for your kid’s future. This is a great way to introduce the concept of investing to your kids. If you are interested in learning more about the different vehicles you can utilize to fund your child’s education expenses, check out my blog post covering this topic here.
5.) Teach Your Kids About Opportunity Cost
In life, we are constantly weighing hard decisions and making trade-offs. Whether that is deciding between purchasing a home now versus getting married or purchasing a new iPhone versus taking a nice vacation. There is no right or wrong decision. However, it is important to understand the different outcomes. By choosing one option, you are giving up the opportunity to pursue the other. I believe this is a vital life lesson that you can begin teaching your kids at an early age. Sometimes they won’t be able to have both the latest pair of shoes and Xbox. They will have to weigh their decisions and choose the best option.
6.) Showcase The Value of Giving
While you are on the path to teaching your kids about money, please don’t forget about the importance of giving. This is a life lesson that goes beyond understanding the value of money. Giving not only benefits the receiver, but also the giver. Generosity releases the power of money in our lives, allowing us to take control of our finances versus the other way around. Also, giving to others teaches us to have empathy and compassion towards others.
Once your kids begin to earn money, allow them to pick a nonprofit organization, individual, church, or project they are passionate about giving back to.
Be a Good Example
Your kids are depending on you. Teaching your kids about money at an early stage will set them up for success and create great money habits. Investing the time to teach your children will be worth it.
Disclosures
None of the information provided is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Piece of Wealth Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein.
