How important is the relationship between kids and money? This is a perfect topic for the season since kids are home for summer break. According to the University of Cambridge, money habits in children are formed by the age of 7. During this period, the brain increases in size fourfold largely because of a rapid increase in the number of synaptic connections between neurons in the cerebral cortex.1 In short, children during this time adapt to each of the experiences they go through at an exponential rate, so it is vital to make these experiences as positive as possible including when it comes to money habits.
For example, these connections start as early as when a child realizes a dime is worth more than a nickel, even though it is smaller in size. Building on those connections can be a valuable way to show the worth of money, as well as the hard work that goes into attaining and keeping your income. As the child interacts within their environment in their daily lives, they observe dynamic interactions between people and objects and their brains attempt to make meaning of it all.1
This is an especially important discussion because many kids do not learn about money in school, underscoring the importance of beginning this education at home. Research shows that only four in ten children say they were taught about money and finance in school.2 Therefore, learning how to raise a financially responsible child can be a critical tool to help them in their future.
Training your kids with simple ways to save will set them up for success. Mahesh Odhrani had the pleasure of being on local Las Vegas outlet Fox 5 News with his three kids, Nirvan, Rehan, and Yasmin, to share three tips for teaching kids about money.
Tip #1: Be Honest When It Comes to Money
Be honest. It is incredibly important to talk to kids about money. To avoid them having a jaded view about money, it is important for them to recognize the value of money, especially the fact that money does not come easily.
Money does not grow on trees, and we cannot always buy everything that our children want. Hence, it would be beneficial to show kids the importance of working hard and dedication, and the importance of earning that paycheck. This highlights the importance of being honest when talking to them about money.
More than anything, one of the biggest positives of being honest with kids regarding money is that it allows them to be comfortable in such discussions as they grow up. You want to empower them to know that if they cannot afford something at a given moment, it is not the end of the world. They can wait a little longer, save a little more, and plan to purchase the desired item in the near future.
Tip #2: Watch Your Spending
Tip number two is to watch your spending. Kids are like sponges and learn A LOT from us. So, they take on all the habits we as parents portray and show them. Therefore, it is about watching how you are spending money in front of kids and teaching them how to make the right choices.
Sometimes, it’s okay to spend $5 for a cup of hot chocolate at your favorite cafe. But most of the time, it’s important to show them that if you spend $0.50 to make a cup of hot chocolate at home, you can save the rest. Again, you can look at this as an opportunity to reinforce this thinking in a positive manner. For example, if there is a toy your kid has asked you to buy recently, you can show them that if they drink the drinks that they have at home for a week, they can get that toy a lot sooner with the money they did not spend at the cafe.
When it comes to spending, you can also help children by illustrating the basic concepts of taxes and expenses. This might not be the easiest conversation to have, but teaching kids about the bills we must pay allows them to factor it into their spending. Expanding on these expenses such as how these bills may pay for our house, water, and power can highlight a direct correlation for children to follow.
The reality is that in this modern day, most of our spending is digital. Although this comes with a variety of benefits, a small caveat is that children don’t get to visually see how much money is being spent. Therefore, taking a couple of minutes after a purchase or trip to the store to break down how much money was spent can teach kids what to expect and what to aim for in terms of spending. Discussions like these can help kids understand the importance of sound saving habits from a young age.
Tip #3: Saving and Donating
The third and final tip is going to be saving and donating. Again, it’s important for kids to understand the importance of saving. Ultimately, being able to manage your finances comes down to the choices you make. It’s not about how much you make, it’s about how much you keep. So, teaching kids about saving with their allowance or chore money is a great place to start.
It is crucial to let kids know they can’t just go and spend all their money on any of their favorite video games or toys. It’s important for them to take a portion of it and save for their future as well. A great way for parents to start this early on is by including your kids in your banking activities, such as making deposits, withdrawals, and transfers. To take it a step further, starting an investment account for your children and explaining the basic ins and outs of how their money can grow sets them on the right foot for their financial future.
A vital tip that is often not talked about enough is teaching children about donating. It is important for them to pick their favorite charities, take a piece of their income, from allowances or chore money, and make the donations. This can help teach kids to recognize when they are fortunate, and that charities help other people that may not be as fortunate as them. To strengthen this connection with gratitude, inviting the kids to see how their donations are making a difference, such as taking them to buy canned foods for the local food bank and dropping them off, can make them even more eager to contribute more.
Teaching your kids about money can be the first step in setting them up for financial freedom and financial security in the future. Financial literacy for children can be a complex subject, so we hope we have given you a couple of tips to help you on their journey. If you have any questions regarding your own financial situation, please visit our website and check out all the available resources on our page. If you would like to speak with an experienced financial advisor, please book a complimentary consultation or call us at 702-907-7444.