Financial literacy is vital for parents to teach their kids for several reasons. If your child understands what assets and liabilities are, he's more likely to spend his money on things that will earn him more money. Or if your child learns how to use credit wisely, he'll budget his money in such a way that he'll be able to pay his credit card balance in full on time every month.
One part of budgeting is knowing the difference between needs and wants. Teach your child that while he may need new clothes, he wants a certain brand of clothing. Here are more ways to teach your kids about budgeting.
Talk About the Link Between Hours Worked and Money
So often, kids want to buy certain things, but they don't understand the many hours you have to work in order to buy those things. If you bought a $45.00 video game for your child, and you work 40 hours a week, this means it costs you 11 hours to pay for the video game. Here is a labor cost calculator You can use with your kids to determine how many hours you need to work in order to buy certain things. When kids learn this lesson, they'll realize that time is money.
Let the Kids Watch You Prepare the Budget
It is also a good idea to let your kids sit with you while you and your spouse prepare the budget. Talk to them about the amount you pay on certain bills each month and discuss ways the family can keep bills manageable. For example, you can ask the kids to turn off all their devices and lights when they're not in the room. Show them a sample budget of expenses that they'll need to pay once they become adults. Create make-believe amounts in different categories.
Give the Kids Side Gigs to Do
Your kids can learn about budgeting by working a few side gigs. If your neighbors need their lawns mowed, train your kids how to do it then have them ask neighbors if they can do the job for them on weekends and for special occasions. After your kids earn money, sit with them and help them create their own budget. Give them three jars: one for saving, one for spending, and one for investing. Have them put an equal amount in all three jars.
Read Kid-Friendly Personal Finance Articles With Them
Look for kid-friendly personal finance and go over them with your kids. Talk about what the authors wrote about budgeting, shopping for bargains, and distinguishing needs from wants. Ask the kids questions about what they read and explain any confusing financial terms to them.
Don't Spoil Your Kids
There's nothing wrong with giving your kids nice things, but this should be done periodically. It's never wise to spoil your kids because they won't learn delayed gratification. They need to understand that in the real world, not everything will be handed to them freely. It is okay to set boundaries with your kids and tell them that you can't afford certain toys at this time.
These tips will help your kids be wise with their finances.