Instructing kids about finance and planning can be quite challenging. These concepts are broad and intricate, and children, being naturally impulsive, desire instant gratification. Their future perspectives are rather short-term, often limited to what’s on the dinner plate that night. Nonetheless, as parents, there are several effective strategies to simplify budgeting lessons for children.
1. START WITH THE FUNDAMENTALS
Like any other lesson, teaching kids about money begins with the basic principles. Because children digest information differently from adults, it’s best to simplify and chunk down the information. Consider introducing a piggy bank, a visual and tactile tool, where they can deposit any loose change they find or receive. Begin by teaching them the following primary lessons:
– The appearances of distinct coins.
– The value of individual coins.
– The number of coins needed to make a dollar.
Once they master these basics, it’s time to teach them the real cost of goods, which includes sales tax. You can illuminate this by letting them select an item (for educational purposes, not for purchase) during a shopping trip. For instance, if they have $10 and find a $9.99 item, they might assume they have enough money to purchase it. That’s when you explain the factor of sales tax, showing with a real-world example how a 7.25% sales tax increases the price to $10.71, making it unaffordable for them at present. Even if you live in a state without sales tax, teaching about it helps them prepare for travel to other states.
2. CULTIVATING SAVING HABITS
After grasping the concept of sales tax, kids need to learn about savings, which can be difficult as they often want things immediately. Encourage them to save for smaller goals initially to motivate them towards larger targets. Visual aids like a piggy bank can be helpful in teaching them to save. Making them count their savings weekly can show them their progress towards their goal.
When children understand basic savings, it’s time to plan for larger objectives like buying a car, paying for college, traveling, or retirement. For such targets, a high-yield savings account is more fitting than a piggy bank. For example, if they deposit $100 in a high-yield account at a 2.4% rate, they’ll have $102.43 after a year– a small yet concrete example of the power of compounding.
3. EARNING MONEY
Now the focus shifts to earning money. Teaching them to do chores can be made easier when they want to earn money for something they desire. Provide a list of house chores and ask them what they would prefer to do and how much it’s worth. The children’s and parents’ perceived values might differ, leading to negotiation– another valuable life lesson. It’s vital to align the remuneration with current market rates and teaching them to rate their time’s worth.
