They say that common sense is not that common, and it’s never truer than when it comes to matters of money. But common sense can be instilled. These lessons can, with a little patience, be taught to children as early as three years old. Psychologists have determined that by seven years of age, a child’s attitude toward money is set.
So start them young. It may not give them the key to securing an insured retirement plan, but if you can teach your child the basics, there is a better chance of them growing into a more financially responsible adult.
Don’t put all your eggs in one basket
This investment basic is one of the first lessons that children can easily learn. It is also easy to teach as it can be demonstrated in terms a child can understand. By literally placing all toys in one basket, it’s easy to see that once something happens to those toys, they won’t have anything left to play with.
Don’t spend more than you make
Ultimately, this is a lesson in patience. This is hard for a lot of kids, but it’s one of the most important lessons they will learn. It boils down to this: You might need to wait to have enough money to buy what you want.
To demonstrate this, take your child grocery shopping. Show them what a budget is, and how you keep to it while buying supplies. Later on, older children can be given a little allowance and then be taught to budget that.
Save for a rainy day
This ties in with the previous lesson. The concept of the far future is a little too difficult to grasp. But it’s easy for them to look forward to their next birthday or next Christmas. They can be encouraged to put away a little of their allowance towards something they want for the occasion. A child who saves up for something they want learns about the value of money, patience, and budgeting skills.
Later on, you can expound the lesson to long-term savings. This compounds their budgeting tasks, too. They will need to choose how much of their allowance to save up for the short term and how much to put away for their future.
Know the difference between wants and needs
Children can’t always separate the two, and to be fair, some adults have a hard time with it, too. But guiding your kid to assigning the proper value to things can be done. You need to be ready to see them make different choices than you would. Because this lesson entails that you allow them to live with the consequences of their choices, you might need to reserve this lesson for older children.
Teaching kids about money is a little complicated. You will need to be firm. Sometimes it can be heartbreaking to see your child making mistakes such as blowing their lunch money on a new game or not saving up enough for that toy that they really want for their birthday.
Still, you should think of it as a real investment in their future. A few hard knocks while they are young will not hurt them or their future. Instead, these would serve as guidelines for them to be a financially independent adult who will make better choices and ensure a better future for themselves.