What is financial literacy? President Bill Clinton explained it best: financial literacy is “a very fancy term for saying spend it smart, don’t blow it, save what you can, and know how the economy works.” Studies show that if parents work with their children when they are young, they will learn the power of saving early on and be more financially responsible as adults. Below are eight tips for teaching your kids how to be smart with money.
1. Make it Fun
You may think that your 8-year-old is too young to learn about finances, but that’s not true. Games like Monopoly, Life, and Pay Day are great ways to teach your children about basic finance: how to make money, how to spend it, how to save it, and yes, how to blow it.
2. Be a Good Role Model
Your children are watching you. Financial literacy is not taught in most schools, so it’s up to you to help your children understand the value of money. Make a budget yourself and include essential categories: expenses, savings, giving, and emergencies. Show them how to make a budget like yours.
3. Discuss Your Spending and Saving Habits
Seventy percent of parents have some reluctance discussing financial matters with their kids. Don’t let that be you. Discuss your spending and saving habits with your children, even if it feels uncomfortable. Involve them in family purchasing decisions; for example, doing research and comparison shopping when buying a car.
4. Give Them an Allowance
Many parents give their children allowances, but not all make them earn it. It’s better to connect chores with allowances, so your kids learn to tie work with income. Teach them how long-term saving can make that money really count.
5. Talk About What Money Does
Even with elementary-aged children, you can discuss the importance of money and what it can do. Use teachable moments, perhaps as simple as bill-paying, as everyday examples of the cost of basic needs. They may not realize how much internet services cost or that electricity is not free.
6. Let Them Work
High schoolers are not the only ones who can work. Middle schoolers can mow lawns, babysit, and do odd jobs for neighbors.
7. Encourage Saving
Forty-eight percent of kids usually spend money as soon as they get it. It’s your responsibility to help them understand the importance of saving. Assist them in developing saving goals, so they think before they spend that hard-earned allowance, birthday money, or holiday check from grandma.
Emphasize the Importance of College
Attending college is probably not on your 7-year-old’s radar, but it should be on yours. Be creative in exposing your children to higher education: take them to a local campus for a concert, sporting event or camp, discuss your own experiences, and have babysitters or older cousins share their insights on college life. Instill passion for learning.
Hopefully before long, your children will begin to understand how money works, as well as the importance of saving and the value of a college education. Open a 529 college savings plan for them and explain the benefits. Encourage them to contribute and match their contributions. Make it exciting and spur their interest by sharing statements so they can see their money growing over time. By doing so, you are reinforcing how long-term saving can help them prepare for a brighter future.
A 529 plan with The Education Plan® is a smart, tax-advantaged way to save for college and grow contributions over time to cover future education expenses and reduce the burden of student loan debt. Whether you want to save for education goals for a loved one or yourself, a 529 plan can help any aspiring student, regardless of age, career path or socioeconomic status.