Empowering your children to achieve financial well-being, including the fundamentals of responsible money management and eventually wealth building, is an educational process that should start at an early age. But even if your children are already teenagers or perhaps young adults, it is not too late.
In fact, teenagers and young adults are often just beginning their financial lives and there is ample opportunity to help them acquire the knowledge and practical money skills that will allow them to develop confidence, make informed decisions, and ultimately secure their financial future.
Start with a Financial Goal
Initial money conversations with your children can begin simply with lessons based on activities that are easily relatable at their age. For instance, you could start by talking with them about a short-term goal they have, one that requires money to achieve, and help them to develop a savings plan to reach their goal. If they don’t already have a target in mind, you can help establish one based on their age and interests:
Toddlers – A toddler’s goal may be to save enough money to go somewhere special, such as the zoo. Or perhaps it’s something even more simple, such as saving money to feed the ducks at a local pond.
School-age kids – When children are slightly older, an appropriate money-related goal might be saving for a coveted new toy or pair of shoes. Or, perhaps accumulating enough money to pay for a special experience, such as horseback riding or visiting Disneyland.
Teenagers – Financial goals for teenagers might involve a favorite pastime or hobby that’s special to them such as purchasing a surfboard, or snowboard. They could also focus on saving to cover the costs of a school trip with friends or helping to pay for the costs associated with club sports or attending a special camp.
Young Adult – Once your child becomes a young adult, their savings goals will likely be much more substantial and could range from buying a new car to moving into an apartment in a desirable location or even going on a dream vacation.
The educational process begins by teaching children the basic principles of saving for their short and long-term goals but later can progress to include teaching them about how to handle money to meet financial obligations and eventually include discussions about various financial products that can be beneficial and even the fundamentals of investing.
Teach and Model Good Financial Habits
Yet another critical part of your child’s financial education is modeling and teaching good financial behavior. Remember little eyes are watching you and look up to you. It’s important to teach your children how you make financial decisions and even talk about mistakes you’ve made along the way.
There are also some key concepts to teach and model for your children that may also help to develop good financial habits:
The value of work ethic
There will be many opportunities as your children grow to teach them the value and importance of hard work so that they mature into adults with a strong work ethic.
This is a critical lesson as some research has shown that establishing a strong work ethic early in life can be a predictor of adult success. And starting this particular lesson young helps make the learning that much easier.
Social scientists believe that children who are expected to put their toys away or perhaps make their bed at a young age are more comfortable with these tasks long before they understand it is work. The chores can evolve as your children get older, but the importance of them remains the same.
Chores teach children how to take care of themselves and to be cooperative and productive. In fact, a University of Minnesota study found that children who complete chores have greater academic and career success and higher IQs.
What’s more, work ethic is an area where you can lead by example. If your kids regularly witness you working hard, they will understand that doing so is normal.
The difference between wealth and money
Being a responsible parent means teaching children the difference between wealth and money as they grow.
Discussions about wealth might cover how much wealth the family has, how that wealth was built, and the purpose of that wealth. Typically, this isn’t a single conversation but rather one that takes place again and again in different ways and at different levels of maturity. As the conversation evolves it might expand to include communicating your family’s values when it comes to wealth.
And as your children grow, you might use the family enterprise to start teaching them about wealth opportunities in the context of running a business.
Teaching children about money on the other hand could cover such basics as explaining what it costs to buy something and what the family spends each year on things like school and other living expenses. It might also cover budgeting, banking, and investing.
Being thankful for everything you have is another important and empowering life lesson and one that by some accounts leads to increased long-term happiness.
To help build this lesson into your child’s ongoing financial education, you might consider instituting a gratitude practice at the dinner table each evening, during which members of the family share one or two things they’re most grateful for that day.
Yet another way to help give your children some perspective is by sponsoring a child in a developing country or participating in community or volunteer work together.
The importance of these actions cannot be overstated. Children will not only learn to appreciate what they have even more, but they’re also more likely to grow into well-rounded adults. Additionally, by helping children to appreciate their wealth and express gratitude for it, the more likely it is that they will have even more to express gratitude for as the years go by.
Practice What They’ve Learned
Finally, giving your children ownership of some financial decisions is one of the best ways to let them practice the principles you have been teaching them. Allow them to practice the lessons you’re teaching now, and they will continue to implement the same skills as an adult.
Consider big and small ways you might empower them to make decisions as they grow, such as using their own money to buy a birthday gift for a friend or using their birthday money to purchase something they want for themselves.
Build on these lessons as they mature. Give your middle school or high school student a specific budget to work within for purchasing school supplies and clothing at the start of each school year. You might also encourage them to decide how they want to divide their allowance money between spending, saving, and charitable giving.
As college approaches, spend time explaining the finances and fundamentals of paying for college including making it a point to review with your child their expected salary from a particular degree or career choice and the living expenses they will need to pay for after landing that first job.
Try not to rescue or “fix” any negative consequences your children experience as they learn these formative money lessons. Instead, turn mistakes or missteps into yet another learning experience so that, hopefully, they’ll make better decisions moving forward, and reach their intended goals.
Raising financially savvy children who know how to achieve their goals and dreams is no small challenge, but financial self-empowerment is one of the most important and long-lasting gifts any parent can give a child.