Financial literacy is one of the most crucial skills a person can possess, providing the knowledge and tools necessary to achieve financial success.
With only 57% of American adults being financially literate, a strong education in personal finance is more critical than ever. An understanding of financial literacy can have a profound impact on children’s future success and well-being, fueling financial independence and thoughtful financial decision-making. In order to achieve this, we must establish financial goals for our children early, by teaching them strategies for success, helping them envision and plan for their future and empowering goal fulfillment.
Teaching children how to manage finances requires more than just a list of rules — it involves instilling a financial mindset. From proven strategies that nurture success to engaging activities, we can uncover the pivotal role parents play in goal establishment and fulfillment. This guide will prepare you to teach your children how to equip themselves for building a financially sound future.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Set goals
Goal setting should include immediate, intermediate and long-term goals to ensure your child learns to continuously set goals throughout their life. Immediate goals, such as saving for a desired toy or a new video game, instill financial responsibility from an early age. This will help foster your child’s understanding of money’s value and cultivate a sense of financial accountability. Intermediate goals, like saving for a musical instrument or an iPad, introduce the concepts of teamwork, budgeting, dedication and responsibility. Achieving these goals boosts their confidence and nurtures a profound sense of accomplishment.
On the other hand, long-term financial goals, such as saving for higher education or a future home, equip children with the tools necessary to build a secure financial foundation for themselves and their future. By helping children set realistic and achievable financial goals that align with their passions and values, we can help instill a sense of personal accountability and motivate their dedication to financial success. Through this, children learn to break down their aspirations into manageable steps, navigating challenges and celebrating milestones along the way.
Build a financial vision board
In a world of screens, the concept of a vision board offers a tangible and creative approach to nurturing financial aspirations through visualizing financial dreams. Children brainstorm various financial goals, bringing their future aspirations into the present. Armed with magazines and printed materials, they select images that resonate with these goals. As they arrange and affix these images to the poster board, the process becomes an act of manifestation.
Furthermore, labeling each image with a corresponding financial goal deepens the connection, prompting questions like: Why did you choose that goal? What steps can you take to achieve it? What challenges might you encounter along the way?
Engaging in discussions about each goal opens the door to insights and exploration. Once the vision board is complete, its display in a prominent place serves as a constant reminder, sparking reflections and reaffirming commitment.
Empower goal achievement
Teaching the art of budgeting is a necessary step to lay the foundation early for how they can one day balance income, expenses and savings. Through this process, children learn to prioritize spending wisely and make informed financial decisions, which fosters responsibility and accountability. Additionally, things like encouraging children to set up a savings account and allocate a portion of their income toward their goals instills discipline. This early habit becomes a cornerstone of responsible money management.
To take their financial journey to the next level, leveraging tools like Invstr Jr, an investing app designed for kids, can be highly beneficial (I am the founder and CEO of Invstr). This app empowers them to define, track and even reward the achievement of their financial goals. It makes the entire process interactive, engaging and relevant to their digital world.
Lead by example
Parents leading by example create a tangible model for their children to follow. When parents demonstrate sound financial habits and share their own financial goals, their children have a front-row seat to observe real-life insights and practical guidance. It is critical to involve children actively in the process of setting goals and nurturing a sense of ownership. This sense of responsibility cultivates commitment and dedication, qualities that are vital in achieving these goals.
Furthermore, equipping children with these strategies and resources enhances their grasp of the financial world. Teaching them about the dynamic force of compound interest, introducing diverse saving methods and demystifying budgeting and investing concepts empower children with invaluable knowledge in personal finance.
A final thought …
Throughout this journey, it's crucial to tailor your guidance to your child's developmental stage. Actively participating in their financial education, parents lay the groundwork for financial literacy, responsibility and skill-building. It's not merely about setting financial goals; it's about cultivating a lifelong connection with money rooted in self-empowerment. The lessons learned today will shape their financial journey tomorrow.
related content
-
Heirs Inheriting Crypto? Don't Make It a Headache for ThemIf you have cryptocurrency in your estate, you'll need meticulous plans and clear instructions to ensure beneficiaries don't lose out after you're gone.
-
DIY Retirement Planning: A Smart Move or a Risky Endeavor?You can cut the cost of retirement planning by doing it yourself. But for something this important, it might be wiser to call in the professionals.
-
Heirs Inheriting Crypto? Don't Make It a Headache for Them
If you have cryptocurrency in your estate, you'll need meticulous plans and clear instructions to ensure beneficiaries don't lose out after you're gone.
-
DIY Retirement Planning: A Smart Move or a Risky Endeavor?
You can cut the cost of retirement planning by doing it yourself. But for something this important, it might be wiser to call in the professionals.
-
Galentine's Day: A Time to Promote Financial Literacy Among FriendsHere are three things women can do to help their friends gain financial knowledge and confidence.
-
These Two Issues Are Critical to Efficient Retirement PlanningYou're saving hard for retirement, but if you're not thinking ahead about taxes and the cost of health care, your savings — and your legacy — could be at risk.
-
How to Use Good Debt (While Identifying and Avoiding Bad Debt)Not all debt is bad, but knowing the difference between good debt and bad debt and how to use them can help you get ahead financially and stay ahead.
-
Four Potential Tax Changes to Keep Your Eye OnMany taxpayers may be surprised by a larger tax bill if the TCJA isn't extended. Check out these proactive strategies to help mitigate some of the impacts.
-
What Can Happen if You Live Together Without a Cohabitation Agreement?Lots of people live together without being married, and there's nothing wrong with that, but if things go south or one partner dies, complications can ensue.
-
Six Risks of Delaware Statutory Trusts in 1031 ExchangesHere's how proper preparation can help you successfully navigate these DST risks, from market uncertainties to structural limitations.
