Cameron Huddleston* says parents need to give their children the gift of financial literacy from an early age.
As a parent, you want the best for your children.
This doesn’t necessarily mean you want them to have the best clothes, the latest toys or coolest gadgets.
The question is whether you’re teaching your children a key lesson that will impact whether they will do well.
That lesson is about money.
“Without a working knowledge of money, it is extraordinarily difficult to do well in life,” says Sam X Renick, co-creator of Sammy Rabbit, a children’s character and financial literacy initiative.
“Money is central to transacting life, day-in and day-out.”
Yet, plenty of parents aren’t helping their kids become financially literate.
Even if you’re not teaching your kids, they will learn lessons about money one way or another.
If you want to play a key role in shaping your children’s feelings, thinking and values about money, you need to give them the gift of financial literacy from an early age.
Start with the basics at a young age
The earlier you start a child’s financial education process, the better.
Lessons should begin before age seven because research shows that money habits and attitudes are already formed by then.
Once your kids are old enough to know they shouldn’t be sticking coins in their mouths, you should introduce them to cash.
Explain what money is and how it is used.
Actually showing them how money works is more effective, so let them see you making purchases with cash.
Even if you pay with a card, explain to your kids that you’re using your money to make purchases.
Instil a habit of saving
Your kids’ early interactions with money will likely involve spending.
They see you using it to purchase things, including things for them, so it’s important to teach them that money isn’t just for spending — they should be saving money regularly, too.
Learning to save isn’t just an essential money habit; saving teaches discipline and delayed gratification.
Help your kids get in the habit of saving by giving them a piggy bank where they can deposit coins or cash.
With young kids, you’ll likely have more luck teaching them to save for short-term goals — such as a toy they really want — rather than for the future, says Tim Sheehan, co-founder and CEO of Greenlight, a debit card for kids with parental controls.
He says encouraging his kids to set short-term goals when they were little helped them learn the value of delayed gratification.
They are now able to save for longer-term goals.
Parents also can encourage their kids to save more by agreeing to match the amount they save dollar for dollar or by a certain percentage.
Create opportunities to earn money
Kids need to have money of their own so they can learn how to make decisions about using it.
An allowance can accomplish that.
However, you should consider requiring your kids to do certain chores to earn their allowance.
Help kids learn to make smart spending decisions
In addition to wanting his kids to understand that money is earned, Sheehan introduced an allowance system so they could learn to live within a budget.
His two youngest children, who are 16 and 11, would constantly ask for money and “spend like drunken sailors,” Sheehan says.
When he started paying them an allowance, he told them that was all the money they would get and that it was up to them to manage it.
“Amazingly, it worked,” he says.
They track how much they have coming in and going out and how much they’re saving using the Greenlight app.
Learning how to budget now will help them when they enter the real world, Sheehan says.
Show kids the value of giving
A key reason that it is important for parents to teach kids financial lessons is because you can share your money values.
If you value giving to others, you can instil that value in your children.
Help your children plan their giving by discussing what groups or causes they want to support.
Teach kids how their money can grow
Saving money is a great habit.
But if you want your kids to learn how to truly build wealth, teach them about investing, Sheehan says.
If you don’t understand investing well, you could give your kids a book that explains how it works.
Renick says his father introduced him to the personal finance classic The Richest Man in Babylon when he was 12 or 13.
“That book really motivated me to want to invest and spend less than I earned,” Renick says.
Model good financial behaviour
Just as important as the lessons you teach your kids about money are the ways you discuss and handle money when you’re around them.
For example, if you complain about having to spend too much on certain things and then take your kids on a shopping spree, you’re sending mixed messages.
Instead, make sure you model the behaviours around money that you want your children to adopt.
Renick says that not only would his father encourage him and his brothers to do work around the house, but also he would jump in and help them out.
“Some of my favourite childhood memories are of having my father assist me washing cars and cutting grass,” Renick says.
“He would also use those experiences to talk to my brothers and me about the importance of work and managing our money.”
If you want your children to develop good spending and saving habits, they need to see you making smart spending and saving choices.
In short, practise what you preach.
And preach with consistency.
Educating your children about personal finance is a process that can take time.
But if you put in the effort and continuously communicate a clear message about money, you will instil good habits that will serve your children well.
* Cameron Huddleston is a personal finance journalist. She tweets at @CHLebedinsky.
This article first appeared at www.forbes.com/advisor.
