Teaching financial literacy to children helps them form healthy money habits that will keep them out of debt later. They learn how to earn, save and invest their earnings.
Financial literacy is an invaluable skill to acquire for anyone, but especially important for young children. Starting early can make a dramatic difference in their future success.
1. Get them started early
Financial literacy is an invaluable life skill that should be learned early. Teaching children how to budget, save and plan for retirement are invaluable lessons they will carry with them throughout their lives.
By teaching them good financial practices now, this also teaches them how to avoid habits which lead to debt problems later. For instance, they should save their money for something really worthwhile instead of purchasing random items every time their mood strikes them.
By age 7, many children have begun developing habits around money that will determine their choices throughout their lives.
Make money literacy part of the fabric of family conversations early and embed it in resources like board games, videos and age-appropriate explanations in a way that sticks.
2. Talk to their school
Cambridge University researchers recently conducted a study that revealed financial literacy can develop in children as young as 7. It’s essential to start your children on this path early, in order to establish healthy financial habits for later.
As a parent, it is your duty to teach your children about money and help them make wise choices as soon as they’re old enough to manage them on their own. Teaching budgeting, savings, debt management, education savings plans, retirement investing and tax planning is vitally important to their future well-being and should form part of their educational experience.
Instead of lecturing your child about finances, start by encouraging him or her to talk openly about it and develop an understanding of what’s happening behind the scenes.
3. Encourage them to open a bank account
Establishing a bank account for your child is an excellent way to introduce them to the financial world and teach valuable money skills like saving and earning interest.
Children who learn early how to save will be better equipped to handle unexpected expenses and build wealth over time.
Your efforts could also make it easier for your children to purchase their own home in the future, since many families require savings for a deposit in order to qualify for a mortgage loan.
When opening a bank account for your child, choose one that offers tools and resources designed to teach financial literacy. Some banks provide mobile apps or online learning centers where children can explore money concepts through interactive lessons.
4. Set up a budget
Establishing a budget can help you manage expenses and set aside money for savings, but doing so requires dedication and self-control.
Begin by identifying fixed expenses, which include costs that remain constant each month such as rent or mortgage payments, car insurance premiums and electricity bills. Variable expenses meanwhile can change according to each month and can include groceries, eating out costs and entertainment expenses.
Calculate how much you spend each month and create a monthly budget. Your ideal monthly spending goal should involve spending less than your income – leaving enough funds for savings or debt payments as needed.
5. Check their credit score
If your children are old enough, it would be beneficial for them to learn about credit. Explain its functionality and the significance of paying bills on time.
At its core, you want your children to build and maintain healthy credit scores – this will benefit them when applying for student loans or mortgages, and is key for future financial success.
There are various tools online that can assist in teaching your children credit and money management, such as apps, games and resources that make learning fun!