Guest post by Remi Jimena.

If you want your children to make smart financial decisions as adults, it’s important to instill good money habits early on. As was noted in our article on ‘Why Kids Need to Learn About Money Now’, teaching kids about basic money concepts at a young age can make it easier for them to understand complex financial topics later on. And since even children encounter situations involving money decisions (buying things they want at stores, paying for items at school cafeterias, etc.), there is even some short-term value in teaching them basic financial concepts.

In this piece, we’ll look at some of those concepts and how they can set your kids up for success.

The Value of Money

When your child asks for a toy and you tell them you can’t buy it because it’s “too expensive,” they might not get the concept immediately. It might not even cross their mind that money can run out, as crazy as that seems to us as adults! For this reason, though, parents need to teach kids about the value of money.

As has been pointed out by CNBC, you can use board games (like Monopoly Jr.) and online games with virtual money (such as Animal Crossing) to simulate commerce and teach kids what money is worth. First and foremost, these games put children in the driver’s seat such that they come to understand that spending money means having less leftover. Additionally, differences between in-game properties’ costs and earning potential will help kids to understand that some things cost more and hold greater value than others.

Earning Money

If your kids aren’t around to see you working, they may not understand that most people get money as a reward for labor. It is therefore important to talk to your kids about your jobs and teach them about where your money comes from. Virtual games that let players grind for in-game money, like Minecraft Dungeons, can also teach them the concept of earning. However, if you’d prefer an approach that’s more grounded in the real world, you can also start an allowance program driven by chores. This means giving your kids tasks to do around the house (from finishing their homework to helping with the dishes) and offering small financial rewards in return.

Saving Money

Saving is a concept that even adults often have trouble with. Though the need to build wealth or maintain secure finances won’t be as important to kids until they grow up, there’s a lot of value in teaching them how to save early on. For one thing, saving can give your kids more financial flexibility with their own limited resources! More importantly, though, it teaches them discipline and delayed gratification with regard to money.

The best way to teach kids about saving is to give them specific savings goals to work towards. For example, you can help them set aside money for a toy or game they want. You can also simulate a bank account with Bankaroo, such that your kids can track the money they save and spend. They can also set their own goals, which further motivates them to save money.

Making a budget

You should also empower kids to take control of their spending by teaching them how to budget. AskMoney’s overview of budgeting describes budgets as estimations of how much money you’ll make and how you’ll spend it over a given time. That’s a simple definition, but a fitting one to convey to kids. Working off of this characterization of budgeting, you can help your kids to project allowances over a period of time, figure out things they might want to spend money on in that time, and then craft a budget accordingly.

Quoted at Better by NBC News, Leif Kristjansen of FiveYearFIREescape notes that parents can also teach their kids about responsible money management by letting them participate in family budget talks. This will help them understand all the expenses they might have to deal with as adults. It will also teach them how to be smarter about their own spending.

Conclusion

If you want your child to be familiar with money management by the time they reach adulthood, it’s important to start their money education as early as possible. Think of it the same way you’d think about investment — the earlier you start, the better chance you have to watch a great result develop over time.