Money makes the world go around, so it’s a crucial concept that your child needs to understand. No matter their age, you can communicate with them about money on a level that makes sense. Every child can comprehend the benefits of savings. You can teach them how to save their money to take care of themselves when they’re older. When they’re equipped with financial literacy, they’ll be able to tackle their future without much trouble.
1. Show How Investments Can Help
Investing and saving are similar ways to grow your money over time, but they have different nuances. Investments are a great way to build your wealth and feed into something larger than yourself. Your child should recognize that investments shouldn’t be a get-rich-quick scheme. Rather, they should be considered a long-term solution to build wealth that will help them in the future.
The market can be volatile at times, so you must communicate with your child that they won’t always see net gains with their money. However, it’s bound to appreciate over time, so investing is still a worthy use of their income.
Show them your investments. Make a point to look at them every day after the stock market closes. This way, you can show your child how their investments may fluctuate from day to day but still appreciate over time. It also demonstrates to them that they don’t need to panic in the future if it looks like they’re losing money on their investments.
2. Open a Bank Account
One of the best things you can do to set your child up for the future is to open a bank account for them. A bank account — specifically a savings account — will teach them the value of saving money over time. Interest can multiply rapidly, especially while they’re young. The compounding interest may be a draw for your child to continue saving. After all, when they put more money in, they will get more out of interest.
3. Be a Role Model
Your child will look to you for habits they should work on, from money to life goals. To show them how to properly handle money and savings, you’ll have to model good behavior for them. If you’re part of the 96% of Americans who pay their bills when due, you’re already showing your child how to be responsible with their money. You can show them all the options, like automating bills using technology, to work toward success.
You can also be a great role model by demonstrating how achieving financial goals is possible. Inform your child when you set a new goal, no matter how small it might be, and let them know once you’ve achieved it. It’ll be the best way for them to see that patience pays off. They’ll know that if you can reach your goals, they can as well.
4. Teach Them About Credit
If they’re old enough to understand the concept of credit, you must teach your child how to handle credit cards correctly. As they age, their credit will be essential to several things, like getting a loan or purchasing a home. If they know how credit cards work when they get their first one, they’ll be less likely to spend irresponsibly.
Show them small ways to increase their credit over time. Emphasize the importance of paying fees when they’re due and not letting them run over — lest it has disastrous effects on their credit. Teach them there’s always a way to build their credit back up, just in case they make a mistake. You might even research credit cards with them to help them pick one out once they’re old enough.
5. Work on a Budget With Them
Budgets are essential, no matter your income level. They show you where most of your money goes and how to reduce purchases to achieve future financial goals. A budget journal can help you keep track of anything from tracking purchases to fixed expenses, and it can make you feel more responsible with your money. Getting your child a journal to track their money could be a great way to teach them the value of a dollar and why saving is important.
6. Answer Their Questions
When your child grows up, money will be an important asset in every area of their life. They’ll likely have some questions about how money works or what they could use it for. Have an open, honest discussion with your child about finances. Explain how saving money can help put them in a more comfortable position than if they spend without a thought.
Your child might have questions about your finances. It’s best to be honest with them. Were there any financial mistakes you’ve made in your past that you want them to avoid? Tell them about it. Your child can learn from your mistakes and be better off for it.
Teach Your Child the Ins and Outs of Savings
Saving money is an essential part of being an adult. Though it can be tempting to spend your money on something frivolous or an item you think you need right away, take a step back and put the money into your savings instead. Teach your child that the impulse will pass and that there are healthier ways to deal with complex emotions than through retail therapy. When they learn the many benefits of saving their money, your child might be more willing to spend smartly.