Raising Kids That Understand Money Management

Raising kids is hard, no matter what you do, and trying to teach them everything they need to be smart, independent adults seems like an impossible feat, especially when there are things that you yourself as their parent struggle with. Teaching money management, and role modeling money management is practically hard. Thankfully Jenny from Mom Loves Best has some ideas to get you started.

Teaching Money Management to Kids
Raising Kids That Understand Money Management

How To Raise Kids That Understand Money Management, Even If You Don’t

As parents, we’re constantly tasked with finding ways to teach our children the critical life lessons that they will need to be well-functioning adults. As if this wasn’t challenging enough, this process gets a whole lot trickier when you are trying to teach something you might not be good at yourself. Finances and money management is a perfect example. How are parents supposed to teach their children to be responsible with money, if they are struggling with debt? Irrespective of your own financial situation, there are some simple yet powerful ways that anyone can raise their kids to have a better understanding of how to manage money. Who knows, maybe you’ll even learn something new along the way.

Kids Need Money To Manage

First and foremost, experience is often the master of all teachers. One of the best ways for children to learn the fundamentals of managing money is by managing theirs. Of course, parents shouldn’t just hand out cash to young kids. Instead, help them come up with ways to earn money, through an allowance, doing chores around the house, or even by starting their own little business like a lemonade or cupcake stand.

Once kids have their own money, they can start to make decisions about how to use it. Encourage them to consider allocating a portion of their funds toward spending, while setting aside some to save. The goal is to make them understand that it takes work to earn money. Then, they should learn the value of a dollar by making their decisions about what to do with it.

Look For Teaching Opportunities In The Everyday

You don’t need to set aside time for money lessons. Instead, look for opportunities during daily errands and activities to teach your kids about money. Real life examples of how you spend money as a family can help them understand how to manage their finances someday.

One great way to demonstrate money management in action is grocery shopping. Talk to your children about budgeting, the pricing differences between name brands and generic options and taking advantage of sales, instead of just buying everything you want in the moment.

Let Them Make Mistakes

Parents are always looking out for their kids and trying to protect them from getting hurt; that’s normal! However, making mistakes can provide them with powerful and memorable lessons. Your children might want to use their savings to purchase a toy that you know is a piece of junk. Go ahead and give them some advice, but let them make the final decision.

The thing to keep in mind is that your kids are only making mistakes with relatively small amounts of money right now. They will still learn a lesson, but it’s better than them making those same mistakes with much larger sums of money once they become adults.

Be Open About Your Financial Issues

Children can learn from their mistakes, and from yours too! Be open with kids about your own financial situation. They don’t need to be privy to all of the specific numbers (because we all know how they like to overshare) but talk to them about the basic concepts. Explain how you go to work for income and use that money to pay your bills. Talk about all of the things in their daily life that they probably take for granted, and how much they cost.

A trickier topic is something like dealing with credit card debt, but it’s a great lesson for kids. Discuss how you used a credit card to borrow money that you didn’t have, to buy something. Now, you have to pay back much more than you initially borrowed because of the interest. Help them understand now, long before they get their own credit card, how dangerous it can be to rely on someone else’s money.

Teach Them About The Power of Interest

Kids should learn at a young age that interest can hurt their financial situation, or it can help them increase the amount of their funds. There are two excellent ways to teach them this lesson. First, you can hold their money for them and act as a bank. Keep track of their balances and award them an agreed-upon percentage of interest every month.

The other option is to have your child open up an actual savings account at a bank. Many institutions offer fun incentives for kids, like their own checkbook or a special prize on their birthday. Not only will kids feel pretty grown up visiting the bank, but you might also be able to teach them how to balance a checkbook.

Most of us probably could have benefited from a few more lessons about money growing up. Strive to do better for your children by taking the time to talk to them about finances while they are still young. You don’t have to be an expert. Just like every penny helps, every little lesson is sure to make a difference.

Jenny is a frugal mom of two. She loves trying to find new ways she can teach her kids to better manage and save money. She also enjoys sharing parenting tips & the struggles and triumphs of feeding her kids on her blog Mom Loves Best and on Pinterest.