6 Tips to Teach Kids Handle Money

Most wealthy families lose their wealth soon after passing it on to the next generation, and those who win the lottery are usually quick to squander the received prize. It is not hard to guess that the reason is the lack of proper financial education.

Our beliefs about money are formed at home. Schools can’t be relied on in this regard. Hence, if you want a prosperous financial future for your child, you need to take matters into your own hands. Today we bring you six tips on how to do it.

1. Talk About Money Openly

People are often reluctant to talk about money. For instance, a third of respondents in a survey by Klarna in the UK felt too uncomfortable to talk about money with peers. It’s a taboo we cultivate at home. Less than a half of another UK sample surveyed by MoneyHelper said they talk openly with their kids about money. A study by SW Research that surveyed a Polish sample indicated similar results, showing this trend holds in different European nations.

Avoiding the topic of money in the family home is an easy way to instill harmful beliefs in a child. Such a taboo sends a negative message that the child may begin to perceive financial issues as something unpleasant or inappropriate.

Instead of avoiding and responding evasively to money-related questions, it is better to take the initiative and slowly but actively explain various issues to the child, using simple examples and words and comparisons that the child will understand. It is worth making a pre-schooler aware of where parents get their money from and what part of the budget various expenses represent. An older child will successfully understand a household budget and why it's important to set money aside for future pleasures or seasonal expenses. And if you're looking for inspiration, check out the book "The Opposite of Spoiled," whose author, Ron Lieber, advises parents on how to play it smart.

2. Theory Is Not Enough

An open-minded approach to discussions about finances is essential and represents a good first step, but it's not enough on its own. In addition to theory, it's worth taking care of practice.

In the very beginning, teach your child to save money. Instead of fulfilling your kid's whims on the spot, a better solution will be to set aside funds together for a given purpose. Determine the amount of money the child needs to raise to buy a chosen toy or gadget (by the way, we can teach older children to set goals using the SMART method). Ideally, the child should be able to set money aside in his/her physical piggy bank or, in the case of an older child, in an account at a financial institution. It's scientifically proven that visible progress improves our motivation. On top of that, it will be a great patience exercise for any kid, and the resulting pleasure will be even more appreciated 😉.

And note: do not make this mistake! Most parents, seeking to teach their child perseverance in investing, forbid to spend the money collected for another purpose. It is better not to do so. Let your child manage the collected budget on its own. In this way, not only will you let it keep a sense of agency, but you will also allow it to learn from its own mistakes. The earlier, the better.

You can also teach about money via games. The youngest children often enjoy playing by simulating events from everyday life. For instance, you can play a store game, where any "currency" (sticks, cards, or toy cash) can be exchanged for items they want to buy. This will help them understand why they can't buy everything lying on store shelves. And if you have older kids who have grown out of such "simulation" games, spend a Sunday afternoon playing one of the "Monopoly" types of board games, adding a precious educational value to family moments.

3. Create Earning Opportunities

It's important to teach children that money comes from work. To this end, it is useful to create "earning" opportunities for them.

A simple solution would be to consider which of the "extra" household chores (and therefore those that are not part of their existing routine) our little ones could perform for an extra "paycheck". Remember to determine beforehand which activities are among those "basic" ones for they won't get paid. This is especially important both to form good habits and to provide the child with clear, understandable rules to follow. It is best to write down individual proposals and specify the remuneration due for performing them. This way, you will support the formation of an entrepreneurial attitude in your child and help him/her understand the relationship between the results of his/her work and the amount of change received.

4. Teach Them the Basics of Budgeting

A budget is one of the cornerstones of healthy personal finance. We have already explained how to create one in our blog. However, this principle is worth instilling in children from an early age to make it a piece of cake for them in the future.

The first step, however, which will work not only for the youngest, is to keep a record of expenses. It will help the kids develop a sense of regularity but also allow them to see what their pocket money is being spent on and consider whether the spending pattern is worth changing. Such a review represents information that increases our financial awareness at every stage of life. Just remember not to judge or, even more so, punish your child for what appears on the spending list. Doing so will be discouraging and probably teach them that it's not worth being honest with you.

An additional form of teaching budget management can be to put a specific sum of money for a purpose close to the child, such as a school "layette", in the child's hands. Of course, the planning and implementation of such expenses should take place under your supervision. However, it is worth putting some responsibility in the hands of the kids, letting them manage the allocated amount on their own.

Older children can also be involved in planning a family budget. You can discuss your monthly fees and planned expenses together and talk about financial goals. This way, they will better understand your financial decisions and, at the same time, learn techniques for managing the household budget.

5. Sharing Is Cool

The trend of shared economy is slowly finding its way into the mainstream. And that's a great thing! Sharing is triple-beneficial because, first, it allows us to build relationships, second, it's planet-friendly, and third, it's good for our wallets. For this reason, it becomes even more important to make your child aware that buying is not always the only (and best) option.

Teach your child to use libraries or game rental stores. Show how much you can save by forgoing the purchase of an unnecessary item that would only gather dust on a shelf after a single use. If you are not affected by transport exclusion, travel with your child on public transport and show how much you can save by doing so (especially with gasoline prices raging today). And if you have surplus food left over after the holidays, be sure to take it to a community fridge!

Due to the popularization of the sharing trend, more and more sharing-based businesses are being created, and consequently, more and more needs can be met by renting! Sports equipment? Electronics, household appliances, or garden tools? If you're not sure, check it out and you'll be surprised how many things you can rent today. To the benefit of the environment - avoiding unnecessary production - and your wallet by avoiding unnecessary expenses.

6. Show Them How to Invest

Managing personal finance is a good start, but still only the beginning of the journey. Most Europeans don't invest, not only losing potential profits but also the value of their savings, which are being eaten up faster or slower by inflation. If you want to pass on the best attitudes toward money to your children, show them how to invest. If you familiarize your kids with investing from an early age, they won't face unnecessary barriers that often stand in the way of effective money multiplication once they grow up.

To this end, Finax makes it possible to open an account for your child. You can read the details on our website.