3 Ways to Teach Your Children Financial Responsibility

3 Ways to Teach Your Children Financial Responsibility

August 27, 2020
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Children learn from their parents in multiple ways. They learn by observing, following an example, and receiving feedback or advice. However, many children often learn by experimenting and making mistakes—a natural part of growing up. But when it comes to making their first financial decisions as young adults, even a simple mistake can wreck their financial future for years. Not only is it highly recommended your children have a good grasp on the concept of money, it is also imperative to teach your children financial responsibility as early as possible.

Here's How to Teach Your Children Financial Responsibility

1. The Budget Lesson

After understanding the concept of money, one of the most important ways to teach your children financial responsibility is how to create and manage a budget. A lesson on budgeting illustrates the fundamental facts about money and provides a deeper understanding of how to be fiscally responsible from the start. Additionally, it shows your children how to live within their own means and opens the door for conversations about other important money topics, such as debt, building good credit, and the positive impacts of saving, planning, and giving.

Simply telling your children “things cost money” easily goes in one ear and out the other without further consideration. Likewise, a lecture about the lure of advertising and its consequences is easily ignored by teenagers, even though studies suggest they often worry about their own financial future. However, a more practical way to help children learn how to be responsible with money is showing them how to create and manage a budget with simple tools they can use on their own. This method also boosts self-confidence.

There are several money management apps for children on the market, such as FamZoo and BusyKid, available for any device to make budget learning fun for the entire family. And if money management apps are not for your family, you can always set up a simple budget using a free, sharable spreadsheet like Google Sheets.

2. The Savings Lesson

Learning to save money for unforeseeable expenses or luxuries is a necessary lesson for everyone and can begin as early as the first gifted or earned dollar. The piggy bank concept is an example your children can use throughout their entire lives. Plus, extended conversations about saving money introduces your children to the pitfalls of excessive debt.

Since your children already watch and learn from everything you do, make a point to keep your own spending habits in check—and show them how you personally save money for that desired family vacation or new car. Consider involving your children in the family savings by starting a family money jar or other fun savings activities. Showing your children how to save money for something they desire instead of putting it on a credit card not only strengthens their patience, it is financial responsibility in action.

3. The Retirement Planning Lesson

Let’s be honest. Some of us did not start saving for retirement early enough and are now paying the price. Therefore, it is a good idea to teach your children financial responsibility by encouraging them to plan for their futures earlier in life. Who said retirement planning is just for adults anyway?

Teenagers can start following these important retirement saving tips as early as their first jobs. Teaching your teenagers about investing and the power of compound interest early is essentially teaching them a way to potentially become a millionaire. You can even show them this easy-to-understand chart to demonstrate the impact of starting a retirement account early versus waiting until they are older.

Why Is It Important to Teach Your Children Financial Responsibility?

When you teach your children how to budget and save, and also how important retirement planning is, you give them critical tools to help them form good financial habits that can last a lifetime. When they have a clear understanding of the concept of money in all areas, they gain the potential to secure successful financial futures on their own. And, this is one of the most important life lessons you can give your children to help them reach their own goals throughout their lives.