Recently, my child, a high school freshman, started a personal finance class at school. As a parent, I’m thankful she has the opportunity to increase her financial literacy in a structured way.
Although, it reminds me that many financial lessons are learned through the course of daily life. Some adults have not been taught financial literacy, and for them, those lessons can often be learned the hard way.
Why We Must Model Good Financial Habits for Our Kids
Children learn financial habits by observing how we earn, spend, save, and talk about money. Not every child learns essential money skills at their school and even those who do can gain practical life skills from seeing their family members’ good financial behaviors.
That’s why it’s important to be intentional about the money habits and perspectives we model for our children and grandchildren at every stage of their lives, even into adulthood.
The way we manage money can influence their current and future views on finances and decision-making.
Simple Ways to Teach Good Money Management to Kids
Here are some foundational financial habits that can help set the next generation up for success:
1. Cashflow Planning
Teaching children to create and stick to a budget is invaluable. Encourage them to track their income (allowance, earnings, monetary gifts) and spending. Budgeting helps children understand that money is a tool that needs careful management.
2. Delayed Gratification
In today’s world of instant access and one-click purchases, teaching delayed gratification may take more intentionality. Teach children to compare prices, wait for sales, and distinguish between needs and wants, helping to build financial discipline.
3. Saving and Investing
Encourage children to save for a larger purchase or an emergency fund. Once they’re comfortable saving, introduce long-term investing, explaining how money grows through compound interest. Basic conversations about long-term investing can set them on a path to financial growth.
4. Responsible Credit Use
Credit cards can be a useful tool or a financial trap. Teach children the importance of paying off balances in full, avoiding unnecessary debt, and maintaining a good credit score to prepare them for wise credit use in the future.
5. Generosity
Money isn’t only about saving and spending; it’s also about giving. Encouraging children to give a portion of their money to causes they care about, or to meet a need, helps them develop a sense of financial responsibility beyond their own needs.
6. Money Discussions
Many families avoid financial talks, but regular, age-appropriate discussions about money, both successes and challenges, create an environment that fosters financial literacy.
Your Good Habits Can Help Your Whole Family
The best lessons often come from daily life. By modeling responsible financial behaviors, you can help set up the next generation to make informed and wise financial choices.
What financial habits do you wish you had learned earlier in life?
At Master’s, we’re happy to talk to you about your financial planning, even when the question is about how to talk about finances with your kids. If you’d like to have a conversation with us, please feel free to reach out today.
