What are the most important lessons you can teach your children about money? That is a difficult question, because there are so many teachings children learn from their parents, grandparents or guardians. One thing is very true, though: How we act later in life often can be directly correlated with what we learned earlier in our youth.
Children get lessons on right and wrong. They can develop a hard work ethic at an early age. They can even excel in math. Too often, however, adults can get themselves in trouble because they did not develop a sense of what to do when it comes to financial matters.
Here are a handful of things that I believe are important to teach the young ones you love.
1. The value of money
We probably all heard the line “Money doesn’t grow on trees” over and over when we grew up. But what does that saying mean to the kid who looks outside and sees that money doesn’t grow on trees? Kids need to learn so much more, like:
- Where does money come from?
- What does it represent?
- How do you get it?
- What can it buy?
Have a conversation with a daughter, son or grandchild. Play the game “How much do you think this costs?” in the grocery store. Explain why one item might be more expensive than others.
Help them understand the basics of supply and demand. For example, the more people want something (i.e., high demand), the more stores can charge for it. Or if an item is hard to find (i.e., scarce supply), the store can also charge more for it. Give inverse examples too.
Even a lesson about day-old bread can help children understand the value of the bread (and money). Ask, “Would you want bread that just came out of the oven or bread that has been in the store for a week?” Then ask, “How much more would you pay for the newer bread?”
For kids a little older, take them to a dollar store and explain why it is now the $1.25 store. Help them understand the concept of inflation and that a dollar today isn’t going to be worth as much as a dollar when they are all grown up. That will lead to a topic about investing. (We’ll save those tips for another article.)
2. Living within a budget
As a financial planner, one of the saddest things I see is when people, even with wealth, cannot live within their means. Overspending often leads to stress and anxiety. It can …….