Wednesday, September 04, 2013

Smart and Practical Ways to Teach Kids About Money

Good money management is one of the most crucial skills one can possess. It can mean the difference in becoming a homeowner or business owner or renting a property for the rest of your life. This skill also needs to be taught to children.  Children are not being taught financial literacy in schools and those that are quickly forget what they are taught and are unable to apply what they learned in real life. Some parents are unable to teach their children good financial skills so these children will grow up to become adults with bad financial habits.

According to a white paper by the Consumer Financial Protection Bureau, only 22 states require high school students to complete an economics course before graduation, and only 13 require personal finance to be taught. That sad statistics leaves millions of children unprepared for the real world.

Unfortunately even if personal finance is a mandatory part of school curriculums in the U.S. it would not be enough.  The key is creating an effective curriculum and using real life situations to engage children so that the concepts taught can be applied and retained for future usage.

Children should be taught early about finances - as soon as they can talk.  It is much easier to teach younger children than waiting until they reach their teenage years to begin educating them about finances.

Children do not understand the concept of how money works until they start earning money on their own at a part-time of full-time job. Children have to be taught that they cannot be motivated by instant gratification.  Sometimes they will have to delay purchases until a later time. They have to be taught to control their urges and use those urges can be used as a teaching lesson. Here are 13 smart and practical ways to teach children about money.

  1. Create a no-buy day. Go on a spending fast and create a day once a week or once a month where you and your children don’t spend any money. Anything you need you have to make or use what you already home at home. You can’t borrow anything from anyone on this day.
  2. Generic vs. Name Brand. Have your children buy one name brand item and the exact same generic brand item. Let them write down the similarities and differences including price, color, material, etc.  Let them determine if buying a name brand item provides better quality or is the same as buying a generic item.
  3. Eating out. Compare menu items and determine portion sizes, menu specials, kid’s meals and what menu items cost. Discuss sales tax and tip and help them review the bill to ensure it is correct. This will help them learn how to comparison shop and find deals and how to ask about specials.
  4. Bank. Help kids setup a mini-store in your home or mini-bank to learn how to comparison shop and make bank transactions. Get your children and their friends serve as customers and you serve as a bank employee.
  5. Say No.  Teach children about the value of money. Don’t say yes every time they ask for money or when they want you to buy them something.  
  6. Real life.  Use real life experiences to show children how to spend money.  Sit them down with you when you are paying bills.  Sit with them to look at sales advertisements to help them find the best bargains.
  7. Discuss money.  Discuss money frequently when watching television, going shopping or when children start asking for money or gifts.  Explain to them how parents have to go to work to earn money to buy them gifts and pay bills.
  8. Tour. Take them on a tour of the US Mint or a local bank so children can learn the process of how money is made and used.
  9. Show. Take children with you to the bank or ATM. Show them how to deposit a check and take money out of a bank account and the ATM.  Show them the receipt and let them know about deposit limits, fees and you can only take out the money you have in your account and consequences of overdrawing your account.
  10. Track money.  Use the envelope system – charity, saving, investing, spending – give your child a small reward when they reach a savings goal or buy a piggy bank with 4 pre-marked slots. This helps them categorize money, learn how to save and how donate to charity.  Teach children how to categorize money: saving, donate, spend.  Explain to them the importance of saving, budgeting and donating to charity.
  11. Spending. Teach children about budgeting and saving to purchase items with cash instead of credit. Show children the benefits of paying with cash instead of with credit. Show the impact of how buying what they want impacts the household budget.   
  12. Wish List.  Ask them to create a wish list of items that are “wants”.  Ask them to think about things they want to buy and how it will impact the household.  Ask them to consider if the item is a need or want.  Wants can be delayed for purchase at a later time.
  13. Advertisements.  Review advertisements in magazines, newspapers, on TV and on the radio and explain what is a good deal and what is not.  Help them learn that all sales and specials are not bargains.

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