Financial Education For Children: Does It Matter?

The general perception of children is that they don’t understand the value of money. After all, young children tend to be terrible at estimating how much an item costs and few know how much money their parents make, or what that means. With that in mind, is it even worth trying to teach children about finances? According to experts, the answer is a resounding yes.

Not only is it important to teach children about finances early and often, but doing so can dictate future success and help alleviate certain forms of stress. While children may not have a strong grasp of money in a concrete way, especially early in life, research shows that money habits are set by age seven. Luckily, there are ways parents can approach money in meaningful ways at any age – and teaching financial independence may just keep young adults from boomeranging back to live with their parents, especially in families with greater financial resources. Those first lessons on money set the stage for a lifetime.

Engage With Early Interest

Typically the first way in which children express interest is by seeking to participate in purchases that their parents are making – they may want to help pick out items and pay. Allow them to give money to the cashier, point out price labels on items, and talk about what items cost money. You should also discuss what things you use or do are free, such as going to the park.

Educate With Allowance

Once children reach school age, financial education can begin in earnest, and giving kids an allowance is an ideal way to do this. It’s also important to take your child to the bank to set up a savings account. By giving kids money of their own, you give them the opportunity to understand how much items cost, what it means to save for something they want, and how to decide whether a purchase is a priority.

Lessons about saving and spending aren’t just about money; they focus on the ability to plan into the future. While young children have a hard time thinking about what happens next, never mind what happens in a month or a year, older children are better able to conceptualize time. That allows them to plan their own spending and also allows you to have meaningful conversations with them about saving for a special item or vacation; it’s an early form of budgeting.

Teaching Teens Responsibility

While overall financial attitudes may be formed by age seven, parents’ responsibility to teach kids about money doesn’t end there. In fact, it’s absolutely critical that parents keep talking to teens about money, especially once they become old enough to get a job, whether that’s babysitting off the books or working a part-time job after school. After all, with more money comes more responsibility and more temptations.

One way to help teens understand that they have greater financial responsibilities when they start earning money is by opening a Roth IRA with your teen when they get their first real job. Roth assets won’t affect their financial aid upon filling out a FAFSA, so this is a safe bet, but it also forces your teen to start thinking about the distant future – retirement. In today’s increasingly precarious financial environment, helping your teen build their nest egg can pay dividends for decades to come.

Teaching kids about money doesn’t guarantee that they’ll grow up to be wealthy, but modeling responsible financial behaviors and talking openly about money can improve their outlook. Ultimately, it’s more important that your child grows up to be smart about money than to have a lot of it. A little savings savvy can go a long way towards financial stability.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.