Seven ways to teach children about money

Give your children a head start toward good financial awareness and habits. Here are some ways to help kids learn about financial responsibility.

1. Save, save, save

Sure, it’s not the most exciting lesson to learn, but it may be one of the most important, especially in an age of immediate spending and gratification. Explain the value of setting aside some money through real-life experiences. Instead of an allowance, you can call it a “commission” and allow them to earn their commission by doing household chores. You could even treat it like a retirement plan, matching a certain amount of money in addition to the payment for the chores.

2. Start a business

Help them open a lemonade stand or other venture, so they can learn about earning their own money. Then take them to the bank with you and show them how to open an account, make deposits and withdraw money. Opening a savings account will also help them understand that by making regular deposits, their balance can grow through compound interest.

3. Budget and expenses

Most kids don’t realize how quickly expenses add up. Teaching them how to live within their means at an early age is important. Help illustrate this by having them keep a log of things they buy, and review it with them at the end of each month. You can take it a step further by adding a “reason for expense” column to point out items they could have gone without.

Have some fun with budgeting by using games, such as the board game Monopoly, to teach them about money management. Another fun way is to give them a grocery budget with a maximum amount of money they can spend. Take them to a grocery store and have them make a list of the items they’d like to purchase as well as the price for each item. Whoever gets all (or the most) of their desired items within the allotted budget wins the game. This can also help teach them about watching for sales.

4. Wants vs. needs

To most children, nearly everything is a “need.” Make a fun, interactive lesson by first explaining wants versus needs, and then having them look through a newspaper, magazine or advertisements with you and pointing out items that are needs and those that are wants.

5. Credit

It’s important for kids to know exactly how credit can impact them down the road if they’re not careful. If your child ever wants to purchase a car or home of their own in a few years, it will be essential to understand how credit works and how to avoid poor credit. Explain how buying with credit is not the same as buying with cash, and with credit, they could actually end up paying a much higher amount because of interest rates.

6. Interest rates

Interest rates can be complex, even for adults. Explain to children how a small investment that earns interest can help their money grow over time, and the sooner they start saving, the better. On the other side of the coin, they should also learn how credit cards with interest rates can leave them deeper in debt if the balance isn’t paid.

7. College tuition

When your kids are older and trying to decide on a college or university to attend, make sure they know how much each school will cost and how much you’re able to contribute to their education. Several college websites have a net price calculator, which will help estimate how much financial aid they may need. You should explore scholarship opportunities with them as well. Reach out to the financial aid office at preferred colleges or universities, talk to a high school counselor or do some online research to see if scholarships are available. Having these conversations early will help give them a better idea of where they may apply.