Do children think about finances and debt? I can say with a slight confidence that it is very likely they do. A new study from the University of Michigan found that even 5-year-olds react differently to saving and spending money.
The study further explains that children’s reaction to money at early stages actually influences their real-life spending habits. This confirms my opinion that teaching children about debt and financial responsibility is crucial in today’s dog-eat-dog world.
But how should you go about teaching your children about these complex topics? Well, don’t worry because there is more than one way to teach children about finances. So, let’s find out how!
Tips To Teach Children About Debt and Financial Responsibility
There is no denying that teaching children anything is difficult. But I also believe that taking a smart approach towards financial literacy will help you. So, check out these tips to get started on the right foot.
1. Start Early
As the aforementioned study shows, even 5-year-olds have different reactions to saving and spending money. Consider this as your queue to start early with your child’s financial literacy, but keep things simple at the same time.
One of the best things you can do here is get your child a piggy bank. You can teach them about setting daily goals of saving a certain amount every day to buy something rewarding in the future. In my opinion, there is hardly any better way than this to teach young children about savings.
Now, let’s imagine your child has an eye on a toy or game. In this case, you can either buy the toy for them or teach them how to save for that toy. Teaching them about saving from an early age also goes a long way in teaching them about delayed gratification.
Use Hands-On Learning To Your Advantage
Hands-on learning tactics are another great way to build a foundation for a financially responsible adult. In fact, studies have highlighted this time and again that children who are given the opportunity to manage money are more likely to become financially responsible adults.
I would recommend you start with small allowances and give them the freedom to manage it. You can take this opportunity to teach them about creating a budget to spend their allowances more effectively and even save extra money for the future. Eventually, you can even go on to teach them about ways they can use their savings to grow their wealth.
Be Clear and Blunt About Debt
Weirdly, some adults have yet to fully grasp the concept of debt. I am here to help you ensure your kid does not become one of those adults. Therefore, I would recommend you take an honest approach to debt.
Explain to them that simple things like borrowing money mean you have to repay it often with an interest rate. I would also recommend you teach them the difference between good and bad debt.
Using examples to break down these complex concepts is also an effective way to address this issue. For instance, try giving your child the idea that taking on debt for education is a good debt since its value will increase with time. On the other hand, buying a car with debt might not be a good idea since its value will only depreciate.
In Conclusion
Teaching children about finance is not as challenging as many might presume. Of course, no children appreciates being bored, so it is all about taking a fun approach to financial literacy.
I would recommend you communicate openly about finances with your children and explain to them the value of delayed gratification. Eventually, you can even go on to introduce them to more complex concepts like debt consolidation solutions to ensure they make the best use of these financial tools.
