Financial literacy is key to growing wealth, and it has to be taught at a young age. As parents, you can teach your children the basics of money and handling money.
Statistics show that doing so is even more important in the Black community.
In a recent report on the Personal Finance Index (P-Fin Index) of various demographics in the U.S., the Teachers Insurance and Annuity Association of America (TIAA)-College Retirement Equities Fund Institute found that African-American adults answered only 38 percent of the P-Fin Index questions correctly, compared to 55 percent of white adults.
African-Americans scored highest in the areas of borrowing and debt management, but scored lowest on questions relating to insuring, comprehending risk, investing, and identifying go-to information sources.
The P-Fin Index measures eight key areas of personal finance knowledge: earning, consuming, saving, investing, borrowing and managing debt, insuring, comprehending risk and uncertainty, and go-to information sources.
Here are 10 tips for teaching children financial responsibility.
- Incentivize them. “This is one of the oldest and most effective tricks in the book. Regardless of how much their savings goal is, offer them a reward when they reach a savings milestone, such as a $25 bonus for hitting the halfway mark,” says William Donnelly, founder of Lottie, a London-based senior and child care platform.
- Inspire with your own stories. “It might help if you narrate your own stories of when you were their age and started saving. Tell them about the pitfalls to avoid from your own experience. This might push them over the finish line and get them to start saving for themselves,” notes Donnelly.
- Praise them for reaching goals. “It doesn’t matter what amount they seek to save. Whenever they reach a saving goal, make sure to praise them for it. Even if they save a mere $5, don’t let it go unnoticed. This will encourage them to keep moving forward with their savings goals,” offers Donnelly.
4.Save money in front of your children. “Children often imitate our actions as adults, and our actions set the way our children will view money in the future,” explains Karl Tippins, finance expert at Pension Times. “Consider taking your child to the bank with you to deposit your own money into a savings account or set a jar up at home in which you put spare change or a set amount each week/month where they can see the pile grow. Get them involved in counting the money once the jar is full and explain what you’ll use the money for now; you’ve saved it.”
- Teach them the difference between wants and needs. “It is helpful to weigh the value of an item based on its usefulness and worth. Do they need it? Can they survive without it? Is it a whim? Those are the questions that they can ask before buying anything,” Cynthia Halow, founder of Personality Max, points out.
She adds, “You can guide them in preparing a list before shopping. Ask them to go over the list to see if they can trim it down to the necessities.”
- Have them work to earn. “It may be simple chores around the house that they can manage to do. Doing such can help them be responsible. You can provide small tokens and fees for their accomplishments,” says Halow.
- Help them determine a goal that is exciting to them. “What are they saving for? For a younger child, it might be a favorite toy. An older child might be saving for a game console or even a first car. The key is to help them have a goal they are excited about. That excitement will fuel the motivation,” offers financial coach Paul Scarfone of Dollar Whys.
- Offer to match their savings. “This is a great way for your child to be motivated and also feel supported. If they save $150, you’ll match their $150. This is a great strategy when they do have bigger goals, like buying their first car,” Scarfone suggests.
- Set up a way for them to save. While opening a savings account is a great way to go, to start with, you might need something where they can see their savings every day. Give them a piggy bank or a jar to keep their savings. When it is filled, you can take your child to the bank for them to deposit their money.
- Remind them that it’s okay to make mistakes. “Even the smartest ones can make mistakes at times. You need to tell your kids that it’s okay to be wrong sometimes, but they need to learn from their errors. When they have the freedom, later on, they’ll have an easier time avoiding costly blunders,” suggests Francis Locknear, founder of TheCostGuys.com.