Parents today have survived their fair share of economic crises: the Great Recession, the dot-com bubble and the various oil shocks during the Reagan and Carter years, just to name a few.
Years of experience teaches us the importance of financial literacy, but what about the next generation of Americans who are facing financial independence for the first time?
Good parents want the best for the children, which means making sure they grow up knowing how to handle their personal finances properly.
Try one of these five smart techniques when you decide to start teaching your children how to handle their money responsibly.
1. Be a Role Model
Children don’t know what to think about anything until someone else tells or shows them how it’s done. If you really want to kick-start their financial literacy at a young age, think about what it means to be financially responsible and embody that image.
This means not taking on excessive debts, prioritizing your purchases, setting a budget and saving money for both retirement and rainy days.
Children naturally mirror you and the decisions you make – if you know you’re making smart decisions with your money, chances are your kids will pick up on it and make similar choices.
2. Play Games That Stimulate Financial Thinking
Contrary to popular belief, not all board games and video games are bad for you. In fact, some not only teach financial literacy skills, but require them if the player has any hope of winning.
Games like Monopoly, for example, provide a wholesome introduction to spending within your means, planning for the future, calculating percentages and interest rates, and simple arithmetic.
Others, such as Starcraft, Sim City and Europa Universalis, teach players how to carefully manage their resources, adapt to a dynamically changing landscape (not unlike the national economy) and set goals for the future.
The skills kids learn playing these games will translate elegantly into real-world applications. Don’t forget to join your kids when they play, both for the quality bonding time and in case they have any questions.
3. Put the Lessons in the Palms of Their Hands (Literally)
Young adults and children are gradually shifting their attention away from desktop computers and laptops in favor of the portability and convenience of smart phones. In a 2012 study, nearly half of Millennials who go online with their phones said they do most of their online browsing through their phone.
With children spending so much time engaging the world through smart devices, it makes sense to introduce personal finance through the same lens.
Apps like Facebook and Instagram are popular because they’re intuitive and convenient. Personal finances shouldn’t be any different. Introduce your children to apps such as Mint, Level Money and You Need a Budget. These will allow them to visualize their finances and spending habits, while receiving helpful suggestions and highlighting important lessons.
4. Use Their Allowance as Money Training
Perhaps the easiest way to teach children about money is to actually give them money to use as they see fit. Most parents do this through an allowance of some sort.
However, it may be harmful to just give them cash for nothing. In a post that appeared on the Psychology Today website, Denise Cummins, Ph.D., noted that an allowance freely given “teaches them that money comes from an authority as a gift” instead of being the result of what they do to earn or create it.
Make the allowance a little more nuanced if you want to go that route. Have kids earn money for completing chores, or perhaps give them the option to take the money now or save up for a big outing, such as a day at a theme park or a trip to the movies.
This will help them develop their own internal system of attributing value to money and the things it can buy. It could be an important first step to making sure they’re not penny wise and pound foolish.
5. Let Failures Come Naturally
No one is immune to financial setbacks. Even if you teach your kids everything you know about personal finances, that won’t be enough to protect them from a job loss, unexpected medical expense or market downturn.
During their early years handling money, it may be beneficial to let them make a mistake or two along the way. If they forget to pay a phone bill or max out their credit card, let them be responsible for the consequences (so long as you didn’t cosign the card with them).
It might break your heart to see them upset, but they’ll learn a valuable lesson and gain some experience for when something truly serious happens in the future.