Since financial literacy education is not prevalent in schools, the most effective way to ensure your children learn the fundamentals of money management is by teaching them. Here are several areas you can focus on:
Wants vs. Needs
Teaching your children how to create a budget around necessities such as food, rent or mortgage, car payments, clothing, healthcare, etc. will help them learn how to prioritize and make wise choices when it comes to spending their money.
Teaching your children that money is finite and “doesn’t grow on trees” is another important lesson pertaining to financial literacy. Helping them understand the concept of opportunity cost, or the tradeoff for purchasing an item, is a good way to teach children that money available to purchase one item isn’t available to purchase others. Involving your children in practical decisions such as choosing one type of cereal over the other is a good way to demonstrate the concept of opportunity cost.
Practicing delayed gratification with your children rather than purchasing every item at their request will help them develop the self-discipline necessary for saving, budgeting, etc. Talking through your children’s purchases with them by asking, “Do you have to have it now or can you have it later” can help them think more logically when making purchases.
Although there are many more areas of financial literacy to cover, (i.e. establishing credit history, investing, etc.), teaching your children some fundamental concepts of money may help put them ahead of the curve.
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