Teaching Your Child the Basics of Financial Literacy

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Guest post by Able USA

According to research, about 75% of teens feel they lack proper financial education. This is an alarming statistic, as poor financial literacy is bound to translate into bad decision-making regarding money, which can include undertaking unnecessary debt, and the inability to manage finances. This can result in kids being unable to grow into financially independent adults and consistently living in a debt trap. Today, The Saving Dude has assembled some tips to help you teach the basics of financial literacy to your child.

Teach Them How to Earn Money

If you have a habit of buying your child everything they ask for, it’s time to stop. Instead, create an allowance system through which your child can earn money for doing chores. This will serve as a great representation of what they’ll experience after starting a job, and is a good basis for teaching them how to accumulate start-up money and start their own business. Additionally, you’ll be teaching them a valuable lesson – money is not free, it needs to be earned. Here are some tasks you can assign to kids:

● Doing the laundry

● Mowing the lawn

● Cleaning the bathroom

● Vacuuming the home

Additionally, help them find work outside the home which can involve mowing other lawns in the neighborhood, starting a lemonade stall, etc. This will make them realize the effort that goes behind earning money and help them value it.

Make Them Spend the Money

On the next trip to the store, if your child puts an item in the cart, ask them to pay for it from their allowance. Understandably, their allowance will be a nominal amount, not enough to buy everything they want. As a result, they will need to choose what to buy or put off their purchase. Expect your child to feel annoyed or say that it’s unfair. While you may feel like giving in, it’s important to be stern, as this will teach them the valuable lesson for the need of budgeting.

After returning home, teach them how to start planning for purchases, which will involve:

● Shortlisting items they want to buy

● Calculating how much they need to work to buy it

● Adding a stipulation that they must save at least 20% of their weekly allowance

● Creating a timeline of when they will be able to make the purchase

Use Games as a Teaching Tool

Here are two amazing money-based games that can help your child learn about earning an income, how to handle debt, and making sound financial decisions:

● Payday: The board is designed like a calendar, with each day having a certain action like, paying bills, receiving rent, etc. The objective is to navigate through the month and have the most money at the end of it. This serves as a good representation of managing monthly expenses as an adult.

● Cash flow: Created by Robert Kiyosaki, the author of the bestselling book Rich Dad Poor Dad, the game focuses on teaching participants how to diversify their income and earn enough passive income to cover their monthly costs. The game forces the players to think critically, take risks and learn sound financial planning.

Educate Them on Investments

Every financially independent individual understands the importance of making their money work for them. Here are two investment instruments your child should know to learn about:

● Stocks: Pull up your investment portfolio and teach your child basic concepts such as stock price, market capitalization, bull and bear markets, etc. Additionally, find informative videos about reading candlestick charts, placing stock orders, opening a brokerage account, and more to educate them on what goes into making an investment.

● Homeownership: Owning a home is one of the best ways to build long-term equity. Leverage your home buying experience to teach them about the planning and effort it takes to own a home, this can include:

● Opening a separate savings account to accumulate funds

● Tips on how to build a high credit score

● Understanding the relationship between supply and demand (i.e., when looking to buy a home, it’s best to wait for a buyer’s market where the supply of homes exceeds demand, and the asking prices are lower).

By incorporating these strategies into your child's routine, from understanding the market when buying a home to learning about cash flow, you’re helping them to develop a healthy relationship with money, enabling them to grow into financially independent adults.

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