If you have children, it is vital to help them understand the value of money for lifelong financial health. Teaching your kids how money works, including responsible ways to save and spend, sets them up for future success in all areas of their life. Explore several tips on teaching your kids the value of money and how investing in items like high-value luxury watches can help them build wealth and thrive.
Discuss How Money Works
One of the best actions to teach your kids the value of money is discussing how money works. Many parents assume their kids understand how money operates, but kids struggle to grasp the concept. This is especially prevalent regarding digital money concepts like credit cards, online bank balances, and ATM withdrawals. You must talk with your children about how these different money elements work. Explain that the balances they see online represent real dollars and that the ATM is not a money-printing machine. Help them understand the concrete connection between using a debit card and how it lowers the amount of money in an account.
Use Age-Appropriate Examples
When discussing how money works with your kids, always use age-appropriate examples to get your point across. Beginning with toddler-aged children, use real-life items like candy or toys to demonstrate how addition and subtraction work. Also, teach them how certain choices and behaviors affect their rewards.
As your children grow, you can shift to using real or play money. Roleplay with your child in a setting where they can add and subtract money to buy goods. Let them pretend to be a store clerk or a restaurant server, giving them a chance to count the money and provide you with the correct amount of change when you pay. For older children, consider giving them a prepaid gift card with a set balance that they can use to make purchases. Then go over their purchases to see how they handle some financial independence.
Set an Example with Healthy Money Habits
As a parent, it is important that you set an example for your children with healthy money habits. Most kids follow in their parents’ footsteps and model their parent’s behavior. If you spend irresponsibly, your kids are likely to do the same. If you want your children to learn how to approach money wisely, you must also adopt healthy habits. Try showing your children how you balance your budget each month or share your thought process behind making big purchases. Also, show your children how to save money and resist making impulse purchases that can negatively affect your finances.
Provide an Allowance
Paying your kids a weekly or monthly allowance is an excellent way to teach them the importance of working to earn money and manage that income early in life. Offering your kids an allowance enables them to experience making money in a safe space and promotes an understanding that their efforts earn rewards. Establish a schedule for when your child will receive payment and what chores they must complete to earn the agreed-upon amount. Letting your child anticipate when and how much they’ll be paid gives them a chance to start being smart with their money and saving for things they want to purchase.
Help Them Set a Budget
To help your kids learn the value of money, teach them about budgeting early. Budgeting is a critical tool for financial management used in 82% of American households. You can start kids as young as five years old on budgeting practices by implementing spend and save jars. Simply label two mason jars and, when your child receives money as a gift or as part of an allowance, they can choose to put it into the desired jar. Create a goal for them to reach in the savings jar before they’re allowed to transfer it to the spend jar for a purchase.
Give Them Something Valuable to Care For
Consider giving your child something valuable for them to care for that has sentimental meaning to your family. A used Rolex watch that belonged to a grandparent or great grandparent retains its monetary value over time, allowing you to give your child something meaningful that they can also treat as an asset. Having something worth a lot of money, like a Rolex or comic book collection in their possession, teaches them to care for valuables and retain assets over the long term.
Let Them Make Purchasing Decisions
Your child can learn how to handle money when you get them involved in purchasing decisions. If you’re redecorating their bedroom, ask for their input on what pieces they would like to have in their newly designed room. Discuss the cost of the different options they like and talk to them about what’s within the decor budget.
You can also encourage them to save for purchases they want to make. Once they learn to budget, your child can set a date by which they plan to save the amount to buy a new toy, gadget, or outfit they want. If you’re planning to spend $50 on something for them as a reward for getting good grades, let them know the amount you’ve budgeted for the purchase and allow them to decide how they want to spend that money. They can choose to use it on an item they’ve had their eye on, go to the movies with friends, or save it toward a bigger purchase later.
Show Consequences of Overspending
Teaching kids the consequences of overspending is essential to prevent them from getting into financial trouble down the line. This is especially true when they reach their late teens and get a credit card, where it’s easy to rack up high levels of debt and not realize the consequences until it’s too late. You can set rules for money management that prepare your child for the realities of the real world. For example, if they have a savings jar or piggy bank, create a rule that they cannot let the value drop below $5. If they do, they owe you a dollar. This teaches kids to keep an eye on their savings and be responsible about spending.
Financial Literacy Begins at Home
As a parent, it’s your responsibility to help your child build the foundation of their money management skills from a young age. When you implement tools early on to help your kids learn about saving, handling, and spending money responsibly, you set them up for success later in life.