Teaching Children the Value of Money

No matter how often you talk to your children about the value and importance of managing money, it’s your own financial habits that will resonate most strongly with them.

Just think about it: In general, kids have no real concept of money. Most often, if they want something at the store or online, mom or dad pays for it with cash or through the use of a little plastic card. Compounding matters is the fact that in many American schools, financial literacy is not a core subject. Therefore, it’s up to parents to teach kids the value of money.

Yet, according to a T. Rowe Price study, 36% of parents are “very” or “extremely” reluctant to discuss finances with their children, and another 26% say they are “somewhat” reluctant.  But if parents want their children to grow into self-sufficient, successful adults, what they teach them and model with their own financial habits will play a huge role in their children’s formative years. That means helping them learn to appreciate that money comes from hard work done consistently and with a sense of pride.

Setting a list of household chores tied to a weekly allowance connects kids with the concept that work offers financial rewards. Just as you’re paid a salary for your job, explain to your son or daughter that the money they earn through finishing their chores is like a salary for them.

We spoke to some financial experts and they agree that among the best ways to underscore the value of money is through instruction and example.

Setting an Example 

One of the best ways to instill the value of money is to let your kids witness how you handle purchases. For example, before leaving the house, have them help you make a grocery list and then accompany you to the store. Let them watch as you buy only what’s on the list and explain why adding extra items will exceed your budget.

Similarly, allow your child to make his or her own small purchases. At the store, help them count out the cash needed to pay for a toy or snack. Have them hand the money to the cashier and wait for the change. If your child wants to spend $2 now rather than save up a bit more to buy something bigger next time, explain the trade-off, but leave the final decision to them.

Explain Opportunity Costs 

Understanding the trade-off between buying one thing over another is an important financial concept for children to grasp. After all, the earlier they learn that buying everything they want is not a realistic way to live, the better off they’ll be. The “opportunity cost,” or the choice not taken, is something they’ll be dealing with their entire life, so learning it early is a good idea.

While it sounds like a complex financial term, explaining opportunity costs to your child is not that difficult. Experts suggest an easy way is to give them two pieces of candy or two snacks that they can choose from. Let them select the one they really want. Now explain that the one they didn’t pick is known as the “opportunity cost.” Further, emphasize that they’ll be making this kind of choice many times over their life, so it’s important to think through what they want and how much they’re willing to spend.

Avoiding Impulse Purchases  

There are few financial decisions that can create greater long-term complications than impulse purchases. Spending money on both big- and small-ticket items without considering the cost or doing research on the quality is a surefire way to get into a money mess.

Your kids will pick up on this. Before they develop this habit, stop to think of a better way to model healthy buying. You certainly don’t want your children to view spending money as a bad thing. The point is to teach them how to avoid the lure of impulse purchases.

One of the best ways to do this is to be prepared. Before shopping—whether in a grocery store, department store, or even a toy store—have a plan. Write down what you’re looking to buy and how much you want to spend. If you want to buy items not on your list, explain to your child the pros of waiting 24 hours before spending the money.

Teaching your children to respect the value of money is one of the most powerful lessons you will ever impart to them. It will help lead to better purchasing decisions on their part and prevent them from getting in over their head with debt.

Reach out to one of our experienced bankers to discover how financial discipline combined with smart purchasing will enable your children to grow into the successful, self-sufficient adults you want them to be.

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