A study done by the University of Cambridge found that by the age of 7, kids have already formed some money habits and begin rapidly forming more as they begin to understand the concept of value. While you can’t teach your toddlers how to invest or choose a mortgage type, there are still some easy things you can do to help teach your kid money-handling skills that will help them as they grow up and encounter different financial situations.
Your kids are much likelier to grow up to have good money habits if, from a young age, they see their parents exhibiting those habits. Allowing your kids to accompany you to the bank or help you choose organizations to donate to are two easy ways you can include them in your financial decision-making. Another way you can set a good example for your kids is by guiding them through a financial decision of their very own. In doing this, you can help your kids grasp the idea of opportunity cost. Weighing the benefits and consequences of a decision is a skill that a child should be taught regardless, but it becomes especially useful when applied to finance.
One way to teach this concept is by walking your child through making a simple financial decision. Try giving them $10 to spend on either a few small items or one bigger item, encouraging them to think about what they want before they make their decision. If they choose the bigger item, they miss out on the potential benefits of choosing the smaller items. If they choose to spend the money on the few smaller items, they give up the potentially better benefits of the bigger item.
The goal of the exercise is for them to understand that by choosing an item, they not only get the benefits of the item they chose, but they also miss out on the benefits of the item they didn’t choose. They should learn that there are both benefits and consequences to all financial decisions — and both should be weighed equally in their decision-making.
Guiding your child through low-stakes financial decisions at a young age helps prepare them for high-stakes financial decisions they will face as they grow up. This guidance, combined with parents who provide a good example to follow finance-wise, builds a strong base of knowledge and experience that your child can rely on as they eventually transition from being financially dependent to handling their finances independently.
Hannah Tallan is currently studying Finance at the Oregon State University Honors College. With a passion for financial education and a love for Oregon, she plans on becoming a CFP and helping Oregonians handle their personal finances with confidence.