It's important to start teaching children about finances when they are young so that they are fluent in the language of economy. Last week I talked about how to teach the youngest children about money. This week let's look at what your elementary-school and middle-school aged children should understand.
Teach about opportunity cost
That’s just another way of saying, “If you buy this video game, then you won’t have the money to buy that pair of shoes.” This is where your children start to learn the difference between wants and needs and how to prioritize their spending. Don't bail them out if they don't have enough for their purchases. They need to have real-life experience with the consequences of their spending choices.
Give wages, not allowances
No one gets money just for breathing, that includes your kids. Everyone in the family has jobs they have to do to make the house run smoothly: make their beds, put away laundered clothes, help get dinner on the table, etc. But give them opportunities to earn extra money for extra chores, like mowing the grass, weeding the garden, cleaning projects or watching younger siblings while mom and dad are out for the evening. This helps your kids understand that money is earned. When they learn the connection between hard work and earning money, they'll value their money more.
Avoid impulse buys
Does this sound familiar: “Mom, I just found this cute dress. It’s perfect! Can we buy it? Please? Please? Please?” Notice the three pleases, a sure sign that emotions are high and intensive bargaining will ensue. It's easy to indulge in impulse buying—especially when you're using someone else’s money.
This is where the really important lessons on finances are learned. Instead of giving in, let your child know they can use the wages they earned from home chores to pay for it. You may want to tell your child to wait at least a day before purchasing anything over $15. It will likely still be there tomorrow, and they’ll be able to make that money decision with a level head after they've considered all the opportunity costs.
Another way to encourage level-headed buying is to have your child comparison shop. If there's an item they really have their heart set on, especially if it's an expensive item, help them research consumer reports to see if it will be all that they expect. Have them compare the price at various stores and online sources. See if they can find the same thing on Craigslist, pawn shops or resale stores.
Stress the importance of giving.
Once they start making a little money, it's important that children learn the value of giving. They can pick a church, charity or even someone they know who needs a little help. They'll see firsthand how giving doesn’t just affect the people they give to, but the giver as well. This helps create positive, generous feelings about money, not just a sense of want or need.
If you weren't taught these practices as a child, you know how hard it can be to overcome bad habits and attitudes about money. As you teach your children about money, you will re-learn the basics needed to have a healthy family budget.
