There are a lot of financial lessons I had to learn the hard way, because my parents didn’t talk to me about money when I was young. Now, I understand that I always had the power to teach myself about finances, but the truth is that, if parents shield kids from money talk starting from an early age, it doesn’t even cross their mind to learn about finances. I thought I was so clever when, at age 23, I opened a Roth IRA, only to have to pull all of that money out two years later because—whoops—nobody told me when you are a freelancer, your taxes aren’t taken out of your paycheck but you have to remember to pay those. I hadn’t, and suddenly I owed the IRS $12K. There went my humble little Roth IRA. That’s just one of many financial lessons I learned the hard way. Spare your children of that experience, and teach them these money lessons young.
The value of a dollar
First, make your kids start working early. Even if that just means selling lemonade or cupcakes on your front lawn (with your supervision, of course). They’ll be amazed to learn that after sitting out there for hours, they may only make enough money to buy one small toy. It’ll make them more grateful when you buy them big toys, regularly. And when you buy them things like…college tuition later.
Teach your kids to put some of their money aside. Maybe you can encourage them by matching whatever they put aside of their allowance each month. This will get them in the habit of keeping emergency savings on hand when they’re older.
Your kids should know that there is always more than one place to buy something. Teach them about shopping around. If they’re interested in something, have them put it on hold, and take them to a few other places that may also sell it. If they are rewarded by finding it for much less money elsewhere, they’ll learn to love the bargain hunt.
But shopping isn’t a hobby
Bargain shopping aside, don’t let your kids feel that shopping is a hobby. If your kids have free time, don’t just drop them off at the mall. Doing so tells them that shopping is a pastime, but it shouldn’t be.
Make sure your kids understand that their paycheck will be smaller than they anticipated, because of taxes. They need to know this in order to properly decide things like, how expensive of an apartment or monthly car payment they can afford.
You aren’t your money
Make sure your kids don’t learn to equate their sense of self-worth with their money. If they do that, they’ll start to associate with spoiled children or irresponsible spenders.
Invest in yourself
Teach your children to invest in themselves, and make sure they know what that means. If they take a class that gives them a skill that they can market, that’s investing in themselves. Buying designer jeans is not investing in themselves.
Spend money to make money
Should your child ever want to go into any sort of business endeavor, it’s good for her to know that you need to spend money to make money. It’s important so this doesn’t come as a total shock, and she creates a budget that actually allows her to A) go into business and B) turn a profit before going bankrupt.
Invest in things that appreciate
Even from a young age, you can start to teach your child about this concept of appreciation. If she has a toy that is a collector’s item, you can show her what you bought it for, and what it’s going for on resale sites. You can also talk to her about things that only depreciate, like cars and clothes, so she never spends too much on those.
Don’t spend money you don’t have
This is a conversation around credit cards, but even more. If you notice your child spending all of her allowance, then promising to pay her sibling back if he uses some of his money to get her something, put a stop to it. She doesn’t have that money yet and shouldn’t be spending it. Eventually, you can teach her about responsible credit card use.
Starting young, teach your child about budgets. Maybe you can have her divvy up her allowance into portions for movies, eating out, and clothes. Check her progress each month to see if she stayed within budget. If she didn’t, talk to her about how to fix that.
Live below your means
You’ll have to lead by example on this one. Get your child in the mindset of living below her means, and you’ll set her up for a lifetime of financial wellness. If and when you increase her allowance, talk to her about the importance of not increasing spending as much as her income has increased.
Live a modest life
Don’t spoil your kids. It’s such a simple thing you can not do that will alleviate them of so many issues later. If your child learns to be happy doing simple things like going to a picnic in the park on a Sunday, rather than attending an expensive concert, she’ll never feel she needs to spend a lot to enjoy herself.
Prioritize necessary purchases
Teach your child the difference between essential and non-essential purchases. Make sure she understands, early, that she shouldn’t buy any non-essentials until the essentials are paid for.
Let them blow their allowance once
If you teach your child this lesson once while she’s young, she’ll never forget it: watch her blow her allowance early in the month. Don’t stop her. She’ll never forget the feeling of wanting to be able to buy things she can’t afford the rest of the month, and she’ll be more responsible with spending when she gets older.