Teaching Kids About Money: 7 Mistakes to Avoid
Financial literacy is an essential life skill that lays the groundwork for a successful future. As parents, grandparents, or guardians, it’s crucial to teach children about money management since that’s often not covered in schools. To help you guide your little ones on this important journey, we've compiled a list of seven common mistakes to avoid when teaching your kids about money.
Mistake #1: Waiting Until They're Older
Even though your toddler may not understand complex financial concepts, it’s never too early to introduce age-appropriate money lessons. Warren Buffett, the famous investor, believes that parents should start teaching their children money skills well before the teenage years. Begin with simple concepts like wants versus needs and counting pennies for preschoolers. As they grow older, gradually introduce more advanced topics such as budgeting, saving, and the importance of earning money. This will provide a solid foundation for learning about credit, investing, and other financial topics as they mature.
Mistake #2: Ignoring Teachable Moments
Seize everyday moments as opportunities to teach your kids about money. When shopping for groceries, let them choose a favorite cereal or snack with the caveat that it needs to be at a certain price point. When planning a family vacation, include them in the conversation, explaining how the cost of different options will affect how long the trip will be and what you will be able to do and see. Encourage your kids to share their opinions, ask questions, and help make decisions. They’ll feel included and learn valuable money management skills in the process. By consistently using these teachable moments, your children will develop a strong understanding of the financial realities they’ll encounter as adults.
Mistake #3: Letting Them Think All Debt Is Bad Debt
While it’s important to teach your kids about the dangers of debt, don’t forget to discuss responsible credit use. Explain the difference between good debt (like student loans) and bad debt (like high-interest credit card debt). Teach them about credit scores and how to build credit responsibly. This way, they’ll learn to strike the right balance and make informed spending decisions in the future. Emphasize the importance of timely payments and controlled spending to maintain healthy credit habits.
Mistake #4: Asking Them to Keep Secrets About Money
Asking your child to keep financial secrets, such as hiding purchases from other family members, can lead to unhealthy associations with money. Instead, promote open communication and emphasize that money is a tool to meet needs and support the family’s well-being. Encourage your child to share their thoughts and feelings about money and strive to create a nonjudgmental environment where everyone can discuss financial matters openly and honestly.
Mistake #5: Thinking You Need to Have All the Answers
It’s okay if you don’t have all the answers or haven’t always made perfect financial decisions. Financial wellness is a lifelong journey, and it’s important to be honest with your kids when you don’t know something. Embrace the opportunity to learn and grow together by researching, attending financial education workshops, or consulting with a financial advisor. By demonstrating humility and a willingness to learn, you’ll teach your child that it’s okay not to know everything, as long as you’re committed to finding the right answers.
Mistake #6: Not Allowing Them to Make Their Own Money Mistakes
As parents, we want the best for our children and hope they’ll manage money skillfully and confidently. However, it’s essential to give them the freedom to learn from experience, especially as they approach adulthood. Allow your child to make small financial mistakes, such as overspending on a frivolous item or lending money to a friend who doesn’t repay. Use these experiences as teachable moments to help them understand the consequences of their actions and guide them toward better choices in the future.
Mistake #7: Using a Piggy Bank as a Long-Term Savings Strategy
While piggy banks and clear jars can be effective tools for teaching young children about saving, allocation, and money denominations, it’s important to introduce your kids to banking concepts as they enter elementary school. Explain how banks and credit unions work, the benefits of savings and checking accounts, and the concept of earning interest. This will help them understand that money saved in a financial institution can grow over time, encouraging them to develop healthy saving habits.
To make the learning process more engaging, consider setting up a youth account for your child. American Heritage Credit Union offers five youth accounts tailored for different age groups, which can set your child on the path to financial success. By opening a youth account, your child will gain firsthand experience in managing their money, tracking their savings, and setting financial goals. Encourage them to deposit a portion of their allowance, birthday money, or earnings from odd jobs into their account to see the power of saving in action.