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As your children grow up, the lessons you teach them become more sophisticated. That should be true even when the topic is money.
But many people are uncomfortable discussing finances, so you might feel unsure of where to start or how to convey increasingly complex concepts.
Here are a few conversation starters and activities you can use to begin — and continue — teaching kids about money and personal finance.
1. Use cash
You can introduce even very young children to the idea of money through simple activities like shopping. Make cash purchases, and let your kids help count the money. Use coupons to teach them about discounts — and save some money at the same time.
Shopping can also show slightly older kids how to compare prices. For example, when you're at the grocery store, point out price differences for various sizes of certain products. Describe how you'd calculate the price per ounce so your children can compare prices on their own.
2. Promote entrepreneurship
Starting businesses can get kids of all ages more comfortable with money. Younger kids can open lemonade stands; older kids can branch out into areas they enjoy. For example, a kid who likes to draw or paint could open a card-making business. A kid with a green thumb could start a flower or vegetable garden. Help them determine how much to charge for their goods by calculating the costs of production and adding a premium for their time.
You could also use this as an opportunity to give your children a loan and explain interest and the borrowing process.
It's up to you how involved your children should become in their businesses, but starting one can be a fun and rewarding way for them to understand the value of work. And remember, it's also a great way to spend time with your kids.
3. Set up a bank account
Once your kids are earning some money, whether through their own businesses or allowances, consider setting up bank accounts in their names. Kids will take great pride in it, and it will teach them about banking, saving and record keeping when they note deposits and withdrawals. If you want to get more in-depth, open up an interest-bearing account and show them how this interest can compound over time.
4. Create money goals
Now that your children have a place to put saved money, they can start setting it aside for things they want. Help them determine all of the costs associated with their goals and then develop abudget and a savings plan. It's a great way to teach them about reducing expenses so they can reach their goals more quickly. And the more excited they are about their rewards, the more likely they are to stick with their budgets.
5. Encourage giving
If philanthropy is important to you, talk to your children about charitable donations. Help them research a few organizations that support causes they believe in, and then help them set and save up for a donation goal. Each time they get money for their birthdays, their allowances or from paychecks, encourage them to set some aside for the cause. And if the charity is local, consider volunteering together or visiting for a tour.
6. Open the door for investing
Just as bank accounts help kids learn about saving, opening simple investment accounts for young adults and teens can teach them the basics of investing. Pick a short list of stocks or other investments you're comfortable with purchasing and help your children research the ones you've chosen to find their favorites. Then you can easily open low-cost trading accounts and help them buy stock. Many kids are amazed when they encounter a product from a company in their portfolio — they're excited to have "ownership" in that company!
7. Discuss the risks of bad credit
Give older kids a lesson on credit scores. Explain that behaviors such as paying bills on time increase your score, while paying bills late or missing payments can lower it. You can also describe how having bad credit can make it harder for you to borrow money to pay for a car, school or a house, or even to rent an apartment — and make it more expensive to borrow when you are approved.
To make the lesson more tangible, pull your own free credit score and talk about how it has impacted your family. This can open up the conversation to other areas of your family's finances, giving your children even greater understanding about earning, spending and saving. And as they get older, you can also help them decide how to protect themselves from identity theft, which can damage their credit scores.
8. Recruit outside help
Consider asking your family's financial advisor or attorney to help explain complicated subjects such as trusts or IRAs. This will open lines of communication with these financial authorities so teens and college-age kids feel more comfortable talking with them in the future. Many professionals also speak at events for educational purposes. Attending a talk with your children can be beneficial.
By teaching your children about money early in their lives, you'll help them start their journey toward financial independence. Fortunately, there many ways to get them started on the right foot financially.