It is easy to understand why some might think it is ridiculous to teach a child too much about personal finances. A kid who is between seven and ten years old may not show much of a natural interest in learning about money. You have to try to instil this interest in them. When they start to make the connection between money and getting the things that they want such as toys it can come a little more clearly to them.
Children who are between the ages of seven and ten have reached a point where they understand reason. They know how to understand and rationalise certain things. That being said, they are not always going to make the connections between certain things like money and working for it. They just see adults spending money often without really watching them having to earn it.
A piggy bank can be a great place to start this learning experience. Children can save up money in their banks at home. Just a few coins here and there may not seem like much, but to a child it really is a big deal. Get children saving their money like this and then show them what they can afford when they have it. Show them how the more that they save, the nicer the items are that they can purchase.
Explaining Borrow And Interest
You are going to have to be very simplistic and delicate when explaining lending and borrowing to children. They probably do not have the mathematical skills to understand complex interest rate tables and the like. Still, you can show them how borrowing money for certain expenses is very prudent while borrowing for others doesn’t make much sense at all. Try to help show them the difference between the two.
There are things such as student loans for example which can make a lot of sense to borrow. These loans give you the buying power to get you through college. This will help to bolster your potential earning power into the future. Explain how interest works on a loan and only taking loans that allow for flexibility in the future. For example, student who take a private loan may start with a 5% interest rate. That interest rate can be refinanced after they have a job and a better credit history to save significant money on the loan.
Those are both things that we can shine a light on and say that these are wise choices. Borrowing to buy the latest video games is not as much of a wise decision. These teachable moments are what children latch onto and really learn from.
Sharing And Donating
While it is always good to show children how to earn money for themselves and make sure their own financial future is safe, don’t neglect to teach them about sharing with others as well. There is no use in building up a child to be greedy in their approach. Not only is this morally objectionable, but it is not helpful to their odds of being a good steward of their own money either. There is a good chance that they will just end up making mistakes that cause them to not hold onto money like you might have hoped in the first place. Get them sharing and donating and you have created a well balanced person from a financial prospective.