Teach your kids the valuable skill of financial literacy today and watch them unlock boundless opportunities in the future!
The financial burden of the average American household continues to rise, with no indication that this trend will slow down.
This is due, in part, to many people not receiving meaningful guidance on money management while growing up.
Instead, they picked up the same misguided money habits that stop most people from achieving true financial independence.
It’s no wonder that so many adults often find themselves trapped in continuous cycles of financial instability… which is why it is crucial you break this cycle and set your child up with the skills and tools they need to be smart about money.
With this guidebook as your navigator, your child will join the path taken by those who have already secured a prosperous financial future.
It’s never too early to learn the basics of financial literacy.
Lead by example and teach your children – or even yourself -- good fiscal behaviors for a more secure future!
Equip your child so they can take charge of their financial future.
Teach your kids the valuable skill of financial literacy today and watch them unlock boundless opportunities in the future!
The financial burden of the average American household continues to rise, with no indication that this trend will slow down.
This is due, in part, to many people not receiving meaningful guidance on money management while growing up.
Instead, they picked up the same misguided money habits that stop most people from achieving true financial independence.
It’s no wonder that so many adults often find themselves trapped in continuous cycles of financial instability… which is why it is crucial you break this cycle and set your child up with the skills and tools they need to be smart about money.
With this guidebook as your navigator, your child will join the path taken by those who have already secured a prosperous financial future.
It’s never too early to learn the basics of financial literacy.
Lead by example and teach your children – or even yourself -- good fiscal behaviors for a more secure future!
Equip your child so they can take charge of their financial future.
"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1." –Warren Buffet (Loiacono, 2021)
The above quote was made by one of the most successful investors in the world, Warren Buffett, and it's a great quote to live by since it encapsulates how successful investors think and how we can create a mindset around that concept. This boils down to good money habits, and to teach these to your kids, we need to start from the very beginning and tell them what exactly money is. They might be old enough to have a vague idea, but it's crucial that they fully understand what it is to have a better relationship with it in the future.
Money is one of those concepts that can appear simple and complex at the same time, but for the sake of simplicity, money is a medium that we use to exchange things, such as services and goods. As a parent, you should start talking about money with your kids as soon as they begin to understand more advanced concepts. You can also explain to them that they can see money as a tool to trade things, but money can also be saved, allowing them to buy more things later. Obviously, this is only a portion of the concept of what money is, but it's a great start. Then, give them examples of what you can purchase with or exchange for money.
As you explain what money is, you can introduce the many forms of money they will find, some of which they may already be familiar with. We are talking about credit cards, debit cards, Apple Pay, Google Pay, Venmo, PayPal and CashApp, to name a few. While these are not necessarily cash or money, they are methods we use to exchange products and services without physical currency, such as coins and notes. In other words, these are simply payment methods. To give your kids a little introduction to money, you can tell them how people used to exchange products before money existed. The most rudimentary form of exchange was called barter, which is when people exchanged a good for another good. Later, they used many different things, such as stones, shells, silver, or gold, instead of coins and bills.
There are several types of currency in the world because almost every country creates its own money used in that respective country. In the US, for instance, the US Department of Treasury (a government department) is in charge of printing money. If the question arises, since it's a common misconception, banks do not create money; they simply offer their services to store and allow the circulation of money.
The Value of Money
It takes a lot of work for children to fully understand the concept of money. For example, they know that if they want to get something from a shop or store, money has to be exchanged for whatever they want. The main issue with financial literacy is that the education system (in this case, education in the US) doesn't implement it in any curriculum as a subject, like math or science. Instead, the school system introduces money, so children learn a little about the different denominations, but the teachings only go so far. It should be a yearly subject from elementary school through college. Today, the bulk of the responsibility falls on the parents and guardians to make children understand the value of money.
As adults, we know money's importance, even if we could better manage our money. Our goal is to maintain our income at a stable level and be able to purchase and pay for everything we need. However, it is also crucial that we start introducing the concept of monetary value into our children's minds. The younger you do this, the easier it will be for them. Doing so will lay great foundations for them to become more financially literate in the future.
You might have children in different age groups, and using the same approach is not exactly ideal. For instance, preschoolers need to learn something less complex, such as how much each coin is worth, while middle schoolers might be learning what savings are and how to go about them. Therefore, we will separate the approaches to money according to group age to make it easier for you to explain different concepts.
Let's start with how to talk to a child who is around preschool age. Again, as soon as they begin understanding some concepts, it's the right time to speak to them about money, its value, and what it represents. At this stage, simply showing your child what the different kinds of money look like is a great start. Nowadays, fewer and fewer children are seeing physical currency since we are slowly changing to more digital ways of payment. Showing them the various coins and bills is essential so that they become acquainted with them and can tell the difference. Once they understand which ones are which, you should get a clear glass or plastic jar so they can start growing their money (make sure it is clear so they can physically see their money increase). Teach them how to use it and show them how to count it. If you don't already have one, you should get them a toy cash register with fake money so they can become more familiar with the different denominations, and this is a great way to teach them to add money.Â
Another important thing you need to talk to them about is that everything we get from the store, like food and clothes, must be paid for with money. At this point, when shopping, try to pay with cash so they get familiar with exchanging money for products. Seeing the cash exchange makes it easier for children to understand the value of money instead of seeing you use a credit card or payment app.
If your child is in middle school, you can start with a few more advanced concepts about money. Some children in elementary school might be ready for this as well; you will have to be the judge of this for your children. At this stage, you're getting closer to teaching them the actual value of money, but they will not fully comprehend it just yet. They will know the difference between something that costs $5 and something that costs $50, and because they understand this, now might be the best time to introduce the concept of "responsible spending." For this, you should approach it from different angles. For instance, you can start off with being grateful, the concept of contempt, what they have, and the difference between things they want and things they need. An important concept to talk about at this age is the act of giving. This is important not only to help them become financially literate but also to help them grow into good members of society. Checking out charities and letting them pick one is a great way to get your kid interested in giving and allow them to feel how good it is to donate. One last concept that might be good to introduce at this age is "opportunity cost." To show them what you mean by that, you can come up with a simple example, such as: If they want to purchase expensive shoes now, they won't have enough money to eat out with their friends later. This is a simple example, but it allows them to think about what they prioritize more and decide which expense is more worthwhile. My children are in elementary school, and I have started explaining opportunity costs to them. They have yet to understand it fully but are beginning to, and I can see them making better decisions due to introducing this concept.
If your child is already a teenager and you've been teaching them all the basics of the value of money, then it's time to start teaching them real lessons. Remind them that contentment is an integral part of becoming financially stable, especially at that age when they tend to compare everything they have with their peers. They have to have the latest iPhone, trendy clothes, etc. But if we teach our kids to be content with what they have, they will be happier and waste less money trying to keep up with their friends. Contempt starts from within, and comparing their things to other people's things will steal their joy. It's important to remind them of this often because it's applicable at that age and throughout their lives.
Another thing that you should be doing is starting to integrate your teenage son or daughter into your household finance conversations. In the near future, they will have to be able to make financial decisions for themselves, so inviting them to listen and discuss household finances will do them well. It's common for children to hear their parents argue over their household finances since studies found money is the number one reason why couples argue, but it shouldn't be that way. If you debate money in your household, you must agree to stop arguing with your partner first. Then, integrate your teenage children into the conversation and give them a chance to come up with a solution or just get used to the types of issues that might arise. Having them present for these discussions is a great way to start financial conversations with them.
At this point, you can give them access to their bank account so they can start managing their money. If you still need to open a bank account for your child, then now is the time. Help them understand how they should be making money. In the house, you can give them more chores or allow them to get a part-time job. Whatever it is, you should be able to let them pursue some ways to make money at this age. Also, tell them about budgeting and creating a simple budget to manage their money. Explain how debit and credit cards work as you open or give them access to their bank account. They might more or less understand how they work, but they need to understand fully. This is important because credit card companies will start focusing their products on them as they grow up and go to college. If they start using credit cards before fully understanding how they work, they might get into a lot of debt.
Talk to them about the dangers of increasing debt, how interest rates work, and how they should avoid large debts and pay them in full every month. While explaining all these concepts, a great way to enhance it and help them remember this later is to give them real-life stories, even from your own life. Remember, the reason for doing this is to ensure your children acquire good financial habits and start developing them early.
How to Get Them Started
I've already mentioned a few ways for you to get started teaching your kids about money. This is something that they will have to deal with once they reach adulthood, but in order to engage them, you will have to come up with great strategies. Regardless of your child's age, they will lose interest quickly if you don't make it interesting.
As I've said before, starting young will make everything much easier for you and for them later in life. Their early experiences with money will shape how they behave with it once they reach adulthood. However, it would help if you made it fun, especially for young children. There are plenty of online resources where you can take inspiration. Role-playing is a great way to get them excited about money. You can devise a cashier-type game where you can purchase something from them, and they must give you the change back. Monopoly is also an excellent way for kids to learn about money, and Monopoly Junior is recommended for kids as young as five. If you don't have Monopoly or if they are under five, then you can come up with your own version of the game. There are also applications you can download, such as Amazing Coin, where kids learn the different types of coins and bills, as well as lessons on the value of money. Whatever you do, as long as you make it enjoyable, they will pay attention.
As I've mentioned, going to the store with them is a real-life experience for them to interact with money and fully understand its value. It is rewarding to allow them to purchase something themselves and give money to the cashier. If you don't deal with cash anymore, then explain how transactions are made with a card (even if it's contactless) and how the card is connected to your bank account. Explain to them why different products have different prices and what factors influence those prices. Here, pointing out some deals the grocery store is offering is also helpful. Explain how these work (whether it's a "buy one, get one free" deal or simply a discount) and encourage them to try to determine if it's a good deal based on the value of the products. This will also make them aware of when they might be paying too much for something.
If your child has pocket money, taking them to thrift shops is a great way to practice seeing how money can be used to purchase items. But it's also good to give them the idea that giving to others is an excellent way to pursue happiness. Items in thrift shops are cheaper than purchasing them new, which can open a discussion about the value of the money. Plus, teaching them to support good causes from an early age increases their chances of doing it when they are older. Buying secondhand positively affects the environment, which you should tell them about. However, none of this will mean anything to them if you're not a great financial example for them. Children are very keen on mimicking their parents' or siblings' behavior, so you should pay close attention to your financial behavior around them. Examples of behaviors they will notice are if you check what products are cheaper in the store, if you buy secondhand products or if you're always looking for good deals.
With my daughters, our favorite finance or money-related games and activities to date are; Monopoly Junior, The Game of Life, role-playing with a pretend store with prices on their toys and checking out at the toy register, shopping at secondhand stores, Amazing Coin app, SplashLearn app and counting physical money (both coins and paper money).
Avoid Making Certain Mistakes
We, as parents, make many mistakes when trying to teach our kids. Most of them stem from a fear of our kids doing the opposite of what we are trying to teach them. We should be doing the opposite and talking about those mistakes so that they are aware of them and can become more financially literate. Inevitable errors that we make or that parents are prone to making are what we will discuss in this section.
Many parents avoid speaking about certain subjects altogether—in this case, individual finances or the general economy—but there are many other subjects that we parents believe are taboo and should not be spoken about. This is a mistake because eventually, kids will face these subjects, whether as children or later in life, and the issue comes when they encounter them later in life and don't know how to deal with them. After all, no one has ever spoken to them about it. Nowadays, kids are exposed to many more things than we were. They acquire a tablet, a phone or other device giving them access to the internet at an early age, and they are constantly bombarded with ads for the most varied products. If we don't discuss these things, those companies' advertisements certainly will. However, when exposed to those ads with no prior exposure, they are more likely to fall for marketing tricks and will end up spending unnecessary money.
Aside from the fact that many parents avoid discussing specific topics, many believe that discussing them is pointless because their children will learn them independently. Their kids very well might, but probably only after they've made a mistake—sometimes a costly one. I am not saying that kids shouldn't make mistakes; they should and they will; it's part of learning, but if we can guide them and steer them away from inevitable errors, we should. Another issue with this method of "they will learn on their own" is that they will not be able to form good money habits early. They will likely cultivate bad money habits that are difficult to break once they grow up. They should figure out money management at a young age to bring those habits with them as they grow.
Underestimating the things they can understand is a way to protect them from the things we want to avoid discussing. Children are much more clever than we believe, so telling them about the foundations of saving and spending can be done from a young age. As long as they can understand words and basic concepts like money, we can speak to them about many other things revolving around the world of finance. Things like investing should be brought up more often in conversation because they might start to understand the basic concept of it. Of course, we don't expect them to start investing, but being familiar with such concepts will help them understand them fully when they grow up. Saving should be something that we teach them from an early age; however, what many parents tend to do is essentially force them to start saving. However, at such a young age, we shouldn't be forcing them to do anything, as they might develop an aversion to it in the future. Because we know the concept of saving and how it can help them in the future, we tend to force this habit on them. But, as you know by now, forcing or telling kids to do things usually doesn't work the way we intend. We will talk about many other ways in this book to convince them to save and create good habits without having to force them.
Giving your kids an allowance is a great way to teach them about the value of money. However, some parents believe that providing an allowance to their children will make them buy things they don't need, and it's all a waste of money. They couldn't be more wrong. Kids will learn to manage their money at a young age, but this allowance shouldn't be linked to any extra work. They should have their own allowance, and if they want to earn more money, they can do so by doing extra chores around the house. But it would help if you gave them an allowance according to their needs. Giving them too much money will make them not appreciate it, and they might spend it carelessly. Initially, give them just enough for what they need, such as buying lunch at school or allowing them to go out with friends once a week. A suitable method is to give them an allowance based on their age. But you have to be the one who finds a good balance because the cost of things changes depending on where you live.
Goal Setting
Goal setting is a fantastic way to teach our kids good money habits. Different-aged children will have different ways of understanding that, and we must make the right approach according to their age.
This might be something that children have never faced, so we need to navigate this carefully. There are certain steps to achieve this and get used to it. First, you need to give them realistic goals according to their age. If they are too young, you cannot set a challenging goal for them to achieve as their first goal. They will likely start hating goal setting. They should also be receptive to the goal and want to achieve it, so make those goals fun. Regardless of the age (we will go through the different methods for different ages later), there are a few steps that you need to follow. The first step is to identify the goal. This is not only something you are solely in charge of; you need their opinion and discuss this with them to understand if they are genuinely motivated to reach that goal. Consider their abilities and build the goal around them. Then, you will have to establish a time frame to complete the goal. Make the time frame realistic and achievable because a positive experience at a young age will make them want to set more goals.
Help them go through the necessary steps to achieve that goal. It will be hard for them at the beginning to plan the steps, but you must help them plan them first. You can incentivize them to write down the steps or draw a plan to reach the goal. Once they are done, you have to put each step into practice. This way, you and your child can track the progress toward the goal, which will help them stay on course. It's also essential that you celebrate when each goal is achieved. You can hang the goals on your fridge, for example, so that they can see them daily. This will motivate your kids to continue to set goals and achieve them.
Goal Setting According to Age
Until the age of two, goal-setting has to be easy for them to achieve and gain confidence in. At this point, you might be teaching them about the different coins and bills and their different values. So, setting a goal where they know the other coins and bills by color, size, or name is a good goal to start with. Counting the number of coins and bills is also a good goal (not the value of each). Alternatively, you can exchange money for items to teach them the basics of transactions, but you should do this by the number of coins and bills rather than by their value. For instance, give them an apple for three coins instead of one dollar.
Between the ages of three and five, they are able to do more. For instance, they can now start putting money in their piggy bank or helping you do transactions in a store. They can start doing small chores for money, too, which can be a way for them to start earning money. My children recently were in this age group. They loved helping with shopping by checking prices and paying at the register.
Between the ages of five and ten, they should already know the value of each coin and bill, which allows them to make change. This is a great exercise to do at home or in a store. They can also start setting money aside for things they want so that you can create goals for those items. My daughters are currently in this age group, and they love to save for a specific toy or even just to hit a savings target of $100, for example.
Between the ages of 10 and 15, they will have the maturity to understand how money works, and you can set up a bank account for them if you still need to do so. I set up bank accounts for my daughters when they were in the three to five age range, but they didn't manage the funds. This will open many possibilities for setting different goals. You can also teach them about budgeting, so setting a goal around budgeting is an excellent practice. They can also pay for things independently, allowing them to manage their money correctly. Setting goals around how much they can save at the end of the week or month is an excellent way to establish good money habits.
Between the ages of 15 and 18, you can create a goal to save money for college, a car, or to invest. Goals at this age will revolve a lot around saving a certain amount in a certain amount of time. They can also get a part-time job, making their savings and budgeting easier to accomplish.
Avoidable Financial Mistakes
As your kid grows up and starts understanding money a little better, it's crucial that you teach them about certain financial mistakes that they shouldn't fall for once they reach adulthood. These lessons can start to be introduced around the age of eight or nine, as long as your kids have a good grasp of the value of money and how things work.
It's important to let your kids know the importance of a credit card to build up their credit score; however, we should also teach them about the negative effects of using it for everyday expenses. When using it daily, we can end up with massive debt, especially if you carry a balance and the interest rate on the card is high. This is why a budget is significant: we know we are staying within our limits and not spending money we don't have. This takes us to another avoidable financial mistake: living on borrowed money. When going through a bad economic period, asking friends, family, or even the bank for money to help us survive is common. When asking this of friends and family, there might not be any interest attached, but it might hinder the relationship we have with them. They might also need to get that money back sooner than you think, which might lead to more friction in your relationship.
The issues above may derive from a need for more budgeting or at least a reasonable budget. This is because, with a good budget, or even a budget at all, you will have control over your finances. It's important to tell your kids that without a budget, it's much harder, if not outright impossible, to reach the financial goals they have set for themselves. This might also stem from the fact that they still need to set financial goals for themselves. With goals, you have objectives that you work toward; with them, we have something to look forward to, and we will be able to become financially stable.
The absence of financial goals or budgets often leads to excessive spending. Even if they have a good salary, they might be unable to save anything. Having goals will also control the way they spend money. Maybe they won't need to eat out every day or go to Starbucks every morning. It's necessary that you calculate those expenses to show them how much money they could save per month or year and how they could use that money to work toward their goals.
Goal Setting Activities
When you first introduce the concept of goal setting to your children, it might be a little hard to understand. This website's Goal Ladder activity will allow them to visualize a ladder or staircase that represents the construction of something, in this case, the steps required to reach their goals. Visualization is essential at a young age, especially when introducing concepts your kids may be unfamiliar with. Doing this activity together and talking about the steps and the respective rewards will make them understand the idea of goal setting a lot easier. This is also called "positive reinforcement," where you encourage your kid to take the next successful step.
Another great activity to set goals for kids is the "Three Stars and a Wish"Â webpage. Here, kids can pick up to three different things that they might want to improve on, such as "math" or "sports." They then have three stars representing their strengths and a "wish" for where they'd like to improve. It's quite didactic and easy to understand, as well as motivating.
For teenagers, you will have to introduce something a little more complex, but there are plenty of activities online for them to pursue. For example, goal-setting prompts are an excellent way for them to reach the goals they want. In this activity, they will be more encouraged to pursue their dreams because you're giving them a voice, and they have a say in these prompts. You can use goal-setting prompts to make them reach their goals for almost anything, such as saving money, budgeting, or any other topic that might not involve finance.
A vision board or a mind map are great tools to help your teenager pursue and set goals. This is something that many adults use to set goals. This is another visual-aid representation of how to choose and pursue goals. Essentially, they are creating a way to achieve their goals, whether that be through a vision board (a more creative way of dealing with it) or a mind map (a more logical way of dealing with goal setting).
At this point, you should see that it's critical to instill good financial habits in your children at a young age. Start with explaining the concept of money and what we use it for. We've already detailed several ways to do this as soon as kids start differentiating the different coins and bills. From there, we have to move on to a little more complex concept: the value of money and how parents can approach that topic without overwhelming them. I've listed many techniques for doing this, such as encouraging them to help you pay at the grocery store or letting them handle money. As parents, we sometimes make certain mistakes that might hinder their progress in terms of understanding finance because we're afraid we're going too fast. However, that is only sometimes the case. We must let them decide for themselves and stop underestimating what they can understand. That being said, we should also warn them about some avoidable financial mistakes that plague many of us as adults. It's essential to start teaching your kids the value of setting goals. This is vital to teach them at a young age because the younger they are, the better habits they will have as they grow.
In the next chapter, we will take what we've learned in this chapter and dig a little deeper. We will also discuss why we work and how money is related to that, how they can start making money so they can develop an entrepreneurial spirit, and what they can do to get started.
In the modern day and age it is hard to know how to best impart financial guidance on the young minds of the future, with many parents are left wondering how to best teach their children about the value of money in a society where many items are acquired with lightest of taps from a piece of coloured plastic.
In Teaching Kids Good Money Habits, author Mario A. Vasquez details the seven ways parents can support their children to become more financially literate. As well as being grounded in the author's educational credentials, it is a guide written by a parent, for parents. In the view of Vasquez, no child is too young or too old to start receiving a financial education. There are one or two exceptions to this, including in the opening chapter on teaching the value of money, but otherwise this is a book best treated as a catch-all guide for any and all children aged four years to sixteen.
Teaching Kids Good Money Habits is a good, informative guide. As a book it broadly aims to demystify the knotty topic of financial education, helping parents bridge the gap where, through funding cuts and a restrictive timetable, state education services are not able. The tone of voice is nicely balanced so content never feels overwhelmingly tedious or too overly informal which is perfect for the intended parental audience with formatting constructed of block paragraphs. With a page length coming in at around 120 pages it feels like a manageable guide for any time-strapped parent.
Essential reading for any parent tackling the knotty topic of financial education, Teaching Kids Good Money Habits is a book I would recommend to adults; it is worthy of the reading time investment and very much worthy of a five star review.
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