It's often said that "Children are the future." But as well-worn as this saying might be, it's true that micro-decisions add up to macro-realities.
The decisions today's kids will make in the coming decades will shape the world. If parents aren't equipping them well, however, the decisions they make won't be wise ones. Truly setting children up for success involves tutoring them in financial literacy.
Make it your mission to guide your children through scenarios to help them become financially literate. Experiences will give them opportunities to grow, and proper supervision will ensure they make prudent choices. Here are 10 ideas to get started:
1. Set the Example
"Do as I say, not as I do" is rarely a successful parenting strategy. You can't help your kids be financially literate if you aren't practicing good money habits yourself. Work on your own financial literacy before trying to instill it in your children.
Do you have debt that needs to be better managed? Are you spending more and saving less than you should be? A personal audit, possibly followed up with some professional assistance, will help you get back on track.
2. Start a Bank Account for Your Child
Numerous banks have options for children to start accounts on a small scale. Having their own checking account will teach your kids how a bank works. This is vital knowledge, as a bank is the financial institution they'll likely have the most contact with in their adult years.
A bank account is an object lesson in financial safety and responsible spending. Teach them the difference between a debit card and a credit card. Help your children understand how easily account information can be accessed, putting their funds in danger. Instruct them never to give out their card information to strangers (or even friends), or to use their card online without your guidance.
3. Take Your Kids Shopping
How you shop says a lot about your financial habits. Do you often give in to impulse buys? Or do you stick to your list, comparing prices and looking for savings?
Remember, your children are watching. Use this opportunity to actively teach them about being a wise consumer. Explain why you make the decisions you do at the store.
The unit price may prompt you to buy a larger box of cereal but a smaller portion of salmon. Your kids might not understand immediately why purchasing eight boxes of cookies is a bad idea, but they'll get there eventually.
4. Explain Opportunity Cost
You can't have it all. With every purchase you make, you're giving something up. That's because - unless you're a superstar CEO - your money is limited. The sooner your kids understand the concept of opportunity cost, the better.
One way to illustrate this is to take your kids to the toy store with a set amount of birthday money to spend. They'll probably want half the toys in the aisle, but they will only be able to afford one or two. This is where they'll discover tradeoffs and learn to weigh decisions before opening up their wallet.
5. Support Their Entrepreneurial Desires
Sooner or later, your kid will ask to start a lemonade stand or another entrepreneurial venture. Support their ambitions! Not only will they learn that it takes hard work to succeed, but they'll receive a real-world lesson in financial literacy.
Operating even the smallest-scale business can generate income, but it also requires inputs. When your kid lands a few bucks from their treat shop, teach them how to put it to good use.
After paying back their startup costs, help them decide how much of their revenue to save and how much to spend. Showing them how to strike a balance will help them develop good financial habits.
6. Pay Your Child a Modest Allowance
As soon as your kids realize that money is needed to buy things, they'll want it. This isn't greed; it's just a realistic view of the world. If you want your child to develop good financial habits, you have to give them some money to practice with.
Some parents simply provide a standard weekly or monthly allowance to their children, no strings attached. But simply handing kids money isn't an accurate representation of how a paycheck is earned.
Instead, pay your kids for their efforts, such as doing chores around the house or achieving scholastic goals. This way, they'll better grasp the value of their hard-earned cash. Simply handing over free money can detract from your ultimate goal of teaching them financial responsibility.
7. Use Apps to Your - and Their - Advantage
The rising generation is extraordinarily tech-savvy. Most likely, your kids are already glued to their digital devices. Use this tendency to your advantage by having them download apps that can help them achieve financial literacy.
Investing apps can show your kids how to put aside money to allow it to grow. Budgeting apps can help them track and manage their spending more effectively. A banking app connected to their personal account will enable them to see how their personal finances stack up.
8. Teach Them About Debt Early On
The average American household has nearly $9,000 in credit card debt. Teaching your kids how to manage debt is a crucial step in their future financial success.
Show your kids what a loan is and how it works - and teach them that not all debts are created equal. While some debts are necessary, such as a mortgage to purchase a house, they should be wary of acquiring unnecessary debt.
9. Walk Them Through Taxes
When it comes to financial literacy, one topic often gets overlooked: taxes. Help your kids understand what taxes are and how they will affect them.
Like debt, taxes can serve much-needed purposes, so explain the function of taxes first. Then, walk your kids through how - and why - taxes are taken out with every paycheck.
Most importantly, try to teach them as much as possible about filing their own taxes. Many adults don't understand this process. As a result, they end up paying an arm and a leg to get the tax prep help they need.
Financial literacy is one of the great keys to "adulting." The earlier you're able to instill it in your children, the better off they'll be when they grow up.
