It is more important today than perhaps at any other recent time for children to be financially literate. Unfortunately, financial literacy is not something that gets taught in most schools, and many parents often feel ill-equipped to do so. This guide will help you provide valuable lessons to your grade school child about money.
Allowances and Spending Plans
One of the most important and earliest lessons that children need to learn about money involves its limitations. You only have so much money, and it can only buy so many items. Allowances and spending plans are ideal tools for teaching them, at early ages when they have safety nets in place, about the importance of both.
Allowances teach them to manage their money. You can set the parameters for how they should use their money and how much those allowances should be. Some parents prefer kids to use them for recreational pursuits. At young ages, that may be the best route. As they mature and their spending habits evolve, you can add other parameters (i.e., clothing, cosmetics, personal care items, food or entertainment).
Spending plans help children learn how to use their limited funds and allowances to help them accomplish specific goals. They teach them about spending wisely and staying within their means each month while also setting some money aside for items that are important to them.
Being Responsible With Money
While financial responsibility is often tricky for grade school children, mastering this skill, at this point in their lives, helps them set the stage for impressive money management skills and techniques as they age and find themselves making essential decisions about their spending.
Concepts to teach here include:
- Need vs. Want. Explain the differences between the two to your child and ask, when they seek to spend money if they are spending for a need or a want.
- Teach children about opportunities to save money on their purchases. That includes things like using coupons, waiting for sales, and applying for rebates to save money.
- Give them opportunities to practice. Give them practical tasks to create budgets, spend wisely, and enjoy the rewards of spending responsibly. They can learn by doing.
Small things like these teach young children greater responsibility, at early ages, than many college students have upon graduation.
Saving and Investing
Teach them about the time value of money, how interest works, and the importance of saving and investing money so their money can grow. You especially want your child to understand the concept of compound interest. Financial gurus often list compound interest as the most important thing to teach children about money.
As far as saving and investing lessons go, you have to keep it as simple as possible to keep their attention and give them all the critical details.
Start with the basics, such as:
- Explain the differences between investing and saving. Discuss the risks vs. the rewards of investing compared to saving and how one often allows the other to happen.
- Use simple language and basic explanations. Young children do not need an in depth analysis.
- If you have one, let them peek at your stock portfolio. Encourage them to ask questions.
- Allow them to invest fake money. Let them create their own imaginary portfolios and game-play stocks.
In all of this, be honest with your children about your own experiences and what you wish you had known and understood at their age.
Most grade school children have a pretty basic set of wants and needs. Some have specialized interests or want at least one big-ticket item at any given time, such as a new bicycle. Teaching your child to comparison shop for that big-ticket item will help them get that item faster, understand that prices differ from one location to the next and that investing their time and effort can help them spend more effectively.
Putting it all Together for Greater Grade School Financial Literacy
At the end of the day, you want to lay the foundation for your child to face fewer financial struggles as an adult. Teach your child the basics of things like:
- Using coupons to save money
- Comparing costs
- Saving and investing money so they can watch it grow
- Understanding the differences between needs and wants
- The beauty of compound interest
Most importantly, allow your child to practice the valuable lessons you are teaching. Doing these things will help your child develop exceptional financial skills that will carry over into adulthood.