More than half the adult population of America doesn’t know how to make and manage a long-term, stable plan for their personal finances. And boy does it show? In fact, 80% of Americans are caught up in debt of one form or another.
Understanding how to manage your personal finances plays a huge role in knowing how to make sensible financial choices. This is why teaching kids personal finance skills can have a huge impact on their financial security later in life.
Incorporating these skills into their lives from an early age makes them easier to understand and much less intimidating. Want to know more about how to teach your children about finance? Then you’re in the right place!
Read on to find out Bonsai finance’s five top lessons to teach your kids about personal finance.
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1. Let Them Know Where Money Comes From
One of the hardest things about understanding personal finance for kids is not having a concept of where money comes from. After all, they spend their whole childhoods being financially supported by their parents, as they should be!
However, this does mean that some children struggle to understand how to take responsibility for the money they have.
Giving your children pocket money in exchange for simple chores is a great way to teach them about working for what they earn. They can then decide how they want to spend it or save it over time, which will help them to appreciate its value.
2. Tell Them About Savings Accounts
It’s never too soon to start saving in life. Whether you want to talk about saving for something specific, like a college fund, or just saving for a rainy day, this is a conversation to get in early.
Once they understand that earning money is something they can take responsibility for, saving that money comes next.
Pocket money is a great practical way to encourage them to save. For example, you could suggest that they set aside a portion of their pocket money to take with them on a family holiday.
That way they can visualize how they are going to spend their savings. But over time they’ll also see the benefits of setting some money aside rather than spending it in one go.
Financial technology and apps are making it easier than ever for kids to interact with their savings accounts. Signing your child up for a savings account and showing how much they have saved each month will help them to see how this works for themselves!
3. Explain the Terminology
Financial terminology can sound confusing and this is often why people feel like they can’t engage with it properly. However, this can lead people into signing up for financial plans that don’t work for them.
Teaching your children about some of the following terms will help them to understand the world of finance a lot better when they do join it. This means they’ll be able to make informed and empowered decisions about everything including:
- Credit and debit cards
- Checking accounts
- Income-based loans
- Home equity lines of credit
- Small business loans
- Cash advances
- Loans for federal employees
- Debit card loans
- Personal loans
- Interest and compound interest
- FICO scores
- Capital gains
- Asset allocation
Of course, some of these terms are more complex than others so you can build up to them. Start off with the basics, such as loans and interest. That way it will be easier to build up to more complicated financial plans.
4. Have a Movie Night to Look at Bigger Concepts
Understanding how finance works on a larger scale can be a great way to engage older kids in their financial decisions. These movies are an entertaining way to get your kids interested in their financial future:
- The Big Short
- Wall Street
- Trading Places
- Dark Waters
- The Pursuit of Happyness
These movies look at financial concepts and the personal impact of financial decisions on individuals. This makes them a great way to start a discussion about the importance of making empowered and sensible financial choices.
5. Teach Them About Budgeting
Learning to live within your means is an important life lesson for us all and one that people often learn far too late! Failing to learn it at all could leave your children plunging into debt.
This can be a tricky lesson to teach. As a parent, you want to treat your child and feel like they have everything they want. This is where giving them their own amount of financial responsibility can be useful.
Giving your children pocket money, which they have to manage themselves is a great way to teach them about budgeting. That way, if they want to buy something, in particular, they have to save up for it themselves.
Along the way, you may come across disappointment about not being able to afford something they want. When this happens, sit down with them and look at their options. This might include saving up for an expensive item or looking for something more in their price range.
All of this provides a great lesson in searching for financial solutions.
It’s Never Too Soon to Start Teaching Kids Personal Finance Skills
Teaching kids personal finance skills might sound like heavy work. However, it will lay the foundations for understanding important financial concepts later in life.
This means they’ll feel able to make strong and sensible financial choices well into their adult life. And that’s something they will thank you for later!
For support getting control of your own personal finances, apply for a Bonsai loan today. We’re happy to help!