Teaching Kids About Money and Financial Goals
Financial literacy is an essential part of your financial journey yet only 57% of Americans are considered financially literate. So where do you even start? At Voyage, we want to be your partner during your financial journey and that journey starts earlier than you think.
We're breaking down how you can teach your kids good financial habits without making it their least favorite activity.
Key Takeaways
Understand how financial literacy benefits every family member.
Learn age-appropriate financial teachings that grow with your children.
Discover how to manage a family budget and set collective financial goals.
What is Financial Literacy?
Financial literacy is the ability to use tools like basic budget management to complex financial products like mortgages and investments. For families, it means mastering skills that ensure sound financial decisions in both the short-term and long-term. It's also important to learn how to keep up with changing finances. We recommend staying updated with news that could affect you and your family.
Gaining this knowledge helps to engage every family member in learning more about money. Children can start developing healthy money habits early on. Doing so is important for them to be financially independent one day.
There are 5 principles of financial literacy:
Earn: Know how much money you make and understand your paychecks and taxes.
Spend: Learn how to plan your spending so you don't spend more than you earn.
Save and Invest: Save money for future needs like emergencies or retirement.
Borrow: Understand how to use loans wisely, like knowing the best ways to borrow money and keeping a good credit score.
Protect: Make sure you have insurance to cover big unexpected costs and take steps to keep your money safe.
These rules help you manage your money better and prepare for the future.
Teaching Financial Literacy from Toddlers to Teens
Early Childhood: Introducing Money
Start with basic concepts like the value of money and saving. An allowance can be an effective first step in teaching kids about earning and managing money. Give your kids a weekly or monthly allowance to use for specific purchases. Be a model for them by illustrating the importance of saving their money and the true value of things they want.
Teen Years: Expanding Financial Understanding
Encourage your teenagers to get summer jobs and open an account at Voyage. With this, try introducing them to saving and budgeting in a practical setting and provide them with support. This is also a good time to introduce them to how credit works.
You can make them authorized users on a family credit card. Teach them about spending limits and the importance of paying off balances. As a parent, it's important to be as engaged as possible when teaching your kids about money.
Building and Managing a Family Budget
Implementing the 50/30/20 Rule
The 50-30-20 rule is a great starting point for teaching kids about budgeting. It simplifies money management into three categories: needs, wants, and savings. This makes it easier for them to absorb the basics of financial planning. The 50-30-20 rule breaks down like the following:
50% for needs like housing and groceries.
30% for wants, possibly including subscriptions and dining out.
20% towards savings or debt repayment, fostering responsible financial growth.
This is a practical, hands-on tool that you can use to help your kids practice making decisions with their allowances or paychecks. By doing so, you'll set your kids up for less financial stress and a better financial situation.
Planning for the Future Together
Setting Family Financial Goals
Involving your kids in setting achievable financial goals helps them understand the "why" behind financial decisions. For many families, it's great to align finances and goals. Doing so ensures that the entire family unites in reaching goals.
Instead of setting goals like saving for college, use fun goals like saving for a new bike or video game. Use those goals to motivate your family to save and budget. Use our savings goal calculator to make their goals more attainable.
Modeling and Teaching Responsible Money Habits
Even though it seems like your kids wouldn't understand interest rates, it's still important to teach them about them. Break down the importance of debt management by showing them what it means to swipe a credit card or get a loan and the importance of utilizing tools like debt-to-income ratio calculators
Learning about money as a family helps everyone get ready for the future. It also strengthens relationships within the family. Start these conversations today, and set your family on a path to financial success with Voyage Federal Credit Union.
