(BPT) – Understanding finances and making smart money decisions is something many people struggle with. In fact, when asked to grade their own financial literacy most people give themselves a “C” or lower, according to new data from Prudential.
“Financial literacy is key to achieving financial wellness, and the best time to start learning these critical skills is when kids are young,” says Prudential Advisors President Brad Hearn. “Parents and caregivers can help ensure their children become financially literate adults by taking smart steps now.”
Hearn makes five simple suggestions for teaching financial literacy to children:
Embrace everyday teachable moments
You handle money in some form every day, so try explaining various aspects of financial well-being to your children in age-appropriate ways. When you pay for something, show kids the receipt so they see how tax is added into the total. Take them with you when you visit a financial professional to learn about how you save and invest your own money, and understand the difference between “wants” and “needs.” And since younger children tend to think more concretely, use cash and coins for hands-on lessons.
Consider costs during special occasions, too
Beyond day-to-day expenses, costs can also become part of the conversation on special occasions. When you’re out to eat, for example, have kids compare prices on the menu before they order. Instilling a cost-conscious mindset early can create good habits and benefit children throughout their lives. Using a menu as a teachable moment is a concrete way to illustrate the cost-benefit difference between ordering the chicken fingers and the filet mignon, for instance.
Create an allowance program
When children reach school age, most are ready to start receiving a small allowance. Help kids understand the value of hard work by creating a list of responsibilities that must be complete in order to receive a certain amount of money. This could include chores, study goals and even practice of things like musical instruments. If they hit their goal by a certain time (typically a week), they receive an allowance.
Teach smart budgeting
When kids receive an allowance and gifts of money at birthdays and holidays, help them to write down a budget so they can learn basic money management. Some families opt to separate money into different categories to help kids better understand this concept. For example, if a child receives $5 a week for allowance, they might be encouraged to divide that amount into “keep,” “save” and “donate” jars or envelopes.
Have kids purchase wish list items
As a parent, you provide plentiful essentials for your children, but that doesn’t mean they should immediately receive the newest toy or video game just because they ask. For extras like these and even small items such as gum or other treats, have kids save and use their own money at the store to make their purchases. If they don’t have the money, they’ll have to wait for another time. This teaches critical delayed gratification skills.
Teaching your kids the basics of financial literacy now can help set them on a path toward future financial wellness. And don’t forget — kids watch everything, so be aware of your own money habits, too. You can pave the way and be a model for your children on how to be financially responsible by being transparent about how you use money and why. This ensures you not only have a clear picture of your own finances, but it also sets a good example for your kids on how financial literacy helps you stay on the path to financial wellness.