5 Things You Need to Teach Your Kids About Money
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As a parent, one of the most valuable things you can do for your children is to teach your kids about money. As a kid who grew up learning nothing about money or how to manage it, I can attest to the risks that children who are uneducated about personal finance can face.
The lack of teaching about how to manage money that I experienced as a child led to years of money mismanagement which resulted in a mountain of debt for our family. Since I want to do everything I can to help my children avoid that kind of financial distress, I’ve put together a list of important things I think they simply have to learn about personal finance management and money in general. Here are 5 things you might want to teach your kids about money:
Teach Your Kids About Money Management
In other words, teach them to have a plan for their money. When I was a kid, any money I earned was, to me, simply money that I now had available to spend on whatever my heart desired. I never learned about the importance of saving or giving. Because I wasn’t aware of the importance of a plan for my money, it sure didn’t last very long, There wasn’t any savings, and I had no long-term goals.
If you are purposeful about teaching your children the importance of having a plan for their money, they can learn the value of short and long-term money goals, the importance of a good saving/investing plan, and the value in giving their money to causes they deem worthwhile.
Know the Difference Between Needs and Wants
I believe this truth is largely lost in today’s society. One of the most valuable principles you can instill as you teach your kids about money is to make sure they understand clearly the difference between a need and a want. Needs are really a very short list: we need food, water, shelter, basic clothing and medical care.
Everything else is a want.
If we can teach our children that wants are not really a necessity, we can help curb the tendency to justify unnecessary spending. Once kids have a handle on this valuable truth, they are better prepared to learn the next key to good money management.
Learn to Understand the Importance of Value-Based Spending
Value-based spending, simply put, is the willingness to learn what things you value most, and to spend your money accordingly. For instance, what is more important to you: that vacation in Italy you’ve been dreaming of or your thrice weekly dinners out? If you chose Italy, you’ll reach your vacation goal faster by cutting your dinners out to once a week, or maybe even once a month.
It’s vital that your children don’t see this as a denial of spending, but instead as a choice to spend money on what matters most to them, as opposed to making purchasing decisions based on instant gratification. By teaching your children this valuable money-managing key, you can ensure they will learn not to waste their money on things that really hold very little value to them, but instead, save their hard-earned cash for something more worthwhile.
The Power of Compound Interest
It’s vital that children understand the value of compound interest, both in regards to saving and investing, and in regards to debt. By giving your children mathematical scenarios of how much more money can be earned via compound interest, and how much more money can be spent via compound interest regarding debt accumulation, you’ll be teaching them the value of saving and investing their money instead of spending and accumulating debt.
Instilling a Creative Mindset When It Comes to Earning
This, to me, is one of the most valuable tips you can share as you work to teach your kids about money. Kids need to understand that they do have the power within them to earn money, and not just via a paycheck from someone else.
You’ll be giving your kids a great gift if you can help them to learn to figure out what their vocational talents and interests are, and how to use those interests to earn a buck. We did this with our oldest daughter when she was quite young. Seeing that she had a real gift for writing fiction, we worked to help her turn one of her stories into a self-published children’s book. Now published on Amazon, Maddie’s book, Running Free, is producing a steady income for her.
By teaching her that her income-earning abilities are in her hands, we’ve opened up a whole new way of thinking for her, and she’s becoming quite adept at finding creative ways to earn money by doing things she enjoys and is good at.
By committing to teach your kids about money management, you’re helping to set them up for a stress-free financial future. If you’re looking for more information on teaching your kids about money, you can get a copy of my free e-book on the subject by clicking here.
What is the one thing you really want to teach your kids about money? What is the most valuable tip you were taught about money as a child? What do you wish you would have learned about money earlier in life that you now know?
Photo courtesy of: Steven Depolo