Think about the first time that you understood the power of money.
Maybe you realized the power of money at a young age when you couldn’t buy something you really wanted. Or perhaps you learned about the power of money as an adult, after finding yourself deep in debt.
Money is a powerful tool and learning how to manage money is an important skill to have at any age. Yet financial literacy is at an all time low, with many people not understanding basic money principles regarding investing, interest rates, and more.
While there is currently a dearth of financial literacy education in the schools, you can make a difference and help the next generation develop better money management skills at a younger age with these 4 lessons:
Understand the Power of a Dollar
Money doesn’t mean much unless you know the power of a dollar. Kids should understand the worth of one dollar and understand each type of denomination of money, from coins to larger bills.
Start by teaching kids about the power of a dollar by giving them 5 one dollar bills and taking them to the store. (The dollar bins at Target are a good place to try this, since things are priced cheaply and there are a variety of small items to compare.) Have them look at prices for various items to see what they could buy.
Or try this exercise: ask them if they could have anything they want in the world, what would they have? Then look at the price for that, to give them a comparison of costs.
It’s vitally important that kids understand the worth of money, costs of various items, and how to price compare.
The Value of Saving
Many kids get an allowance and immediately think of what they could spend money on. Start teaching your kids the value of saving at an early age.
Saving is like anything else — with time and practice, it becomes a habit.
If you give a kid a ten dollar allowance, encourage them to save a portion of it. Teach them that by saving money every month, they will build up a nice nest egg for their future.
If your child wants something that is a bit pricey, tell them they should save up their allowance to get it. Help them do so by setting incremental goals and tracking their progress.
You may want to think of a very small reward to provide when they reach a savings milestone.
Or try giving kids two jars; one for saving and one for spending. This helps build a visual representation of how much money they have, and can help separate the ideas of saving and spending.
As a parent, it’s easy to want to spoil children and give them everything they want. But with some delayed gratification and encouragement to save, your kids will understand that they have to work for items they want. They will slowly start to understand the value of saving.
How to Make Money
Children can often go to the bank of Mom and Dad when they want something. After all, you are the one with the money.
Teaching kids that they can make money on their own is a valuable financial lesson that can spur independence in children, increase responsibility, and help them learn the value of hard work.
Brainstorm ideas with your kids on how to make money: selling candy bars, selling lemonade, cleaning houses, babysitting, pet sitting, etc. Or develop a list of chores they can do to earn an allowance.
The Beauty of Giving
When kids first start to understand the power of money and understand its worth and power in the world, it can be easy to hoard it or only spend it on themselves. While it’s important to teach your kids the power of saving and making money, it’s also important to teach them the power of sharing and the beauty of giving.
Volunteer at a soup kitchen with your kids, or at a local event promoting a good cause. Teach your kids gratitude for health and wealth and let them understand that it’s a gift — a gift they can share with others through giving.
Explain that $5 can buy a meal for a family in need, or that $3 can buy a new toothbrush. By teaching kids the beauty of giving, they can truly understand the power of money and how it can be a vehicle for helping others.
As a parent, you have an opportunity to shape your kids’ money mindset and influence their financial education — something that is so often lacking in schools.
Aside from these four lessons, remember that kids’ greatest role model is you. They look up to you and will walk in your footsteps. Strive to be a role model, lead by good example, and help your kids get on the right financial footing.