Where did you learn about money?
Did a parent explain to you how credit worked, or show you how to write a check? Or did another trusted adult, like a teacher in school, provide you with your financial education?
If you’re like most Americans, what you learned about money came from your parents -- but they likely didn’t sit you down and give you any formal lessons. Financial literacy is pretty low in our country; there’s no set coursework on personal finance in school and lots of parents are simply not sure how to best educate kids about money.
Financially empowering the next generation of kids starts right here, with us. We need to be proactive about teaching our children how money works in the real world. By teaching some important money lessons, we can help our kids with the knowledge they need to succeed as adults themselves.
Here are some of the most important money lessons to teach and the steps to take as a mom or dad if your parenting goals include raising financially independent kids.
Teach by modeling good money behaviors
If you’ve sworn around a toddler, that’s all the experience you need to know that kids are like sponges. They absorb everything. They don’t just pick up bad words, though. They learn through watching what you do. Even the smallest moves you make are being observed by your kids -- and from there, they’ll learn and make judgements based on those actions.
So act accordingly. If you want to raise financially independent kids who are good with money, you need to practice good money management habits yourself.
For example, get in the habit of using cash, not plastic, so that kids can see that you must exchange money for goods or services (instead of making the assumption a swipe of the card magically grants them all the stuff they want). Other actions might be more subtle. Regularly updating your budget or keeping receipts doesn’t go unnoticed by your kids, even if you think they don’t understand what you’re doing or don’t care.
Be careful not to speak negatively about money, either. In order for your children to form their own positive money management skills, they need to understand that money is a tool that can be used to gain security and stability. Instead of talking about wishing you had more money, not having enough money, or being worried about money, talk about the power of saving or why living beneath your means leads to financial success.
And then, when your kids ask questions about things you’ve said, take the time to explain what it means if they don’t understand. Always be open to discuss money and finances with your children; then you’ll be the first place they come when they’re curious.
Say “No” and then explain why
You’re the parent. You have the power to say no.
It’s hard not to give your kids everything they want and ask for; most parents strive to provide more for their children than they had themselves growing up. But this can also be a dangerous road to wander down. It can quickly lead to not only a lack of appreciation, but also a lack of understanding that money just doesn’t grow on trees.
But it’s not enough to just say “no” all the time. Without the why, kids will just keep asking -- and many will likely feel upset or resentful if they don’t understand your answer. When your kids ask for something, don’t be afraid to say, “no…” and then, “because we don’t have the money for that right now.”
You can also take this opportunity to explain about prioritizing spending to your kids. Talk to them about how if the family spends money on lots of toys at the store today, that money won’t be able to go toward the big trip to the beach next month that your kids are excited about.
While you do have the money to spend, there’s not enough to buy everything. That’s why your spending has to closely align with your values. In this example, you’d explain to your kids that as a family, you value the experiences of a vacation together more than acquiring more things when there are already lots of toys at home. This is a critical concept to understand if you want your kids to eventually be financially independent.
Teach kids where money really comes from
Again, money doesn’t grow on trees (no matter how much we wish it would). But kids don’t come programmed with the knowledge that money is a finite resource and it must be earned.
As a parent, you need to provide them with that knowledge.
Explain to your kids that you go to your job and do your work in exchange for a paycheck. No one hands you money because you asked for it. There is no special place you can go to in order to get more money once the cash you’ve earned is gone.
The only way most of us acquire money is by exchanging our time, effort, and hard work for it.
Once they understand this, it’s time to let them try the concept out for themselves. Don’t give kids something -- especially cash -- for nothing. In one way or another, children can work to earn what they receive.
This doesn’t mean you need to send your kid to the salt mines. Their “work” may be in the form of maintaining good grades at school or working hard at a sport, activity, or hobby. As they get older, they can take on chores and responsibilities around the house in exchange for an allowance, a shopping trip, or other financial reward.
Life is pretty easy when you’re a kid. Your children can handle doing their own laundry, cleaning up their rooms, washing dishes, sweeping, dusting, feeding the pets, and more around the house. Providing them with age-appropriate chores and then compensating them with age-appropriate rewards will help them understand that in the real world, no one is giving out free lunches.
You have to earn what you have and work for what you want.
Help kids practice gratitude
Although this concept isn’t directly related to money, helping your kids understand how to appreciate what they have and practicing gratitude on a regular basis may be the best things you can do to raise financially independent kids.
When your kids are appreciative of what they have, rather than pouting about what they don’t, they’re laying the foundations of a successful financial future. When you stop the cycle of wanting, you don’t feel like you have to spend every last dime looking for the next little boost by making new purchases. That kind of happiness is fleeting. Money can be used to position yourself in such a way that you have more freedom, options, and security in life. But buying more and more material stuff when most of us already have far more than we need will not bring happiness.
Believing that you’d be happy if you only had more stuff than you currently have is a rabbit hole that’s very easy to fall into and very hard to find your way out of.
By teaching your kids to be grateful for all they’ve got, you’re safeguarding them against falling into that trap -- and putting them on the path to financial success and independence.
Kali Hawlk is a freelance writer and content manager currently working on building her business and becoming a full-time solopreneur. She's passionate about personal finance, careers and business, and all things Gen Y--and she writes about it all on her blog, Common Sense Millennial. An avid runner, she enjoys getting outside as often as possible when she's not immersed in blogging and helping other small businesses build and manage their online presence. Connect with her on Twitter @KaliHawlk.