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Passing Financial Literacy onto Children

, by Rob Kaufman

Teaching children how to manage money starts at home.

According to Wikipedia, Financial Literacy is defined as follows: "the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources."

There's no doubt that the financial skills and knowledge referred to above will, and should, come from experience with money. And there's no better place for a child to begin learning the value of money and its proper management than at home. And with April being Financial Literacy month, there's no better time than now to start teaching your children the skills and techniques necessary to properly manage money.

The ABCs of Financial Literacy

These days, as bills fly out of ATM's with the push of a few buttons, it's sometimes difficult for parents to communicate the meaning of money and the importance of treating it with respect. When it comes to providing children with the information they need to become financially literate, there are three building blocks on which to base their learning:

  1. VALUE: Money doesn't grow on trees (or inside an ATM)

The first thing children need to understand about finances is that the "things" they have - from toys and candy to clothing and food - are available because someone worked for it. That sort of lesson can start as early as three years old and continue well into their later years. When your child reaches the age when they can do actual chores, they can "earn" the money themselves with an allowance for doing those chores.

Children who learn and understand that money has value will likely make better financial choices down the line. They'll know how important it is to budget their money, track their spending and stay out of debt. This in turn will help them save for their future.

  1. BUDGET: Teach how to prioritize - with restrictions

Every month we budget our money... a certain amount for groceries... fuel... cell phones... and, if we're lucky, a certain amount for fun! As early as possible, children need to understand the concept of budgeting and how to prioritize on what to spend their money.  Next time you go grocery shopping with your children, give them three dollars. Allow them to choose how they want to spend their money so that they'll be making the decision as to what's most important to them when they only have certain amount of money to spend. This allows them to learn what a "budget" is and how to utilize their own sense of priorities to make a decision.

  1. SAVE MONEY: Delayed gratification is the key to a better life

"I can't wait!" We've all said it and it doesn't matter whether we're two years old or sixty, we all enjoy instant gratification. Teaching a child to save money for the future occurs in phases but it's only through actual, tangible experiences that we truly understand the benefits of delayed gratification. For example: Make a pizza from scratch with your children and then place it in the oven alongside a pizza taken from the frozen section of your local grocery store. Give them a slice from each so they can taste the difference. That's the perfect time to bring up the point about how much better things turn out when you give yourself the time do something right and have the patience to wait for it. This, in turn, translates into saving money... hold and invest some of it now for a better life later on .

Value. Budget. Savings.

If your children learn early enough how important it is to respect the value of money, budget appropriately and save for the future, they'll be less likely to run into financial difficulties when they're on their own. Talk with them about money whenever the time is right... send them articles to help guide them... tell them about the new apps and software that can help them stay on the right financial track. All of these things can help make managing finances easier for them, and for you, in the years to come.

Follow along with our Financial Literacy Month Education Series throughout this month.

Rob Kaufman

Rob is a writer... of blogs, books and business. His financial investment experience combined with a long background in marketing credit protection services provides a source of information that helps fill the gaps on one's journey toward financial well-being. His goal is simple: The more people he can help, the better.