5 Money Lessons to Teach Your Children during Quarantine
April is Financial Literacy Month, a time for families to discuss the importance of money management. These lessons are more important now than ever, with over 22 million Americans currently on unemployment. You can use the COVID-19 pandemic and potential economic downturn to come as an opportunity to teach your children about financial priorities. Here are five money lessons to instill during quarantine.
1 – Make Saving a Bill, Not an Option
If you’ve been teaching your children that they should save money, now is the time to switch gears. Treat saving money like a bill that they have to pay regardless of other expenses. If your child receives $5 a week in allowance, make him or her put $1 of that into savings. This is a requirement, not an option. You could establish the savings as an emergency fund, or you could assign it to a specific savings goal.
2 – Set and Maintain an Age-Appropriate Budget (Weekly or Monthly)
No matter how old your child is, he or she can learn to budget. If your child has a toy he or she wants to buy, establish a budget that will lead to that goal. If your child doesn’t receive an allowance, that’s fine! Budget time instead. “You have one hour of free time, but you have to spend 15 minutes of that reading.” Your child can determine when that time should be allotted, and what to do with the remaining 45 minutes. Make sure your child follows-through with whatever budget he/she establishes, just like adults do every month.
Check out How to Set a Monthly Budget for additional tips.
3 – Prioritize Spending Based on Needs, Not Wants
Adults have to make tough decisions with their money. Children need experience with that so they can properly prioritize their funds. Have your child create a list of needs and wants. Then explain how his or her money can apply to each scenario. Your child may want a snack from the store, but he needs new pencils for school. Explain why the pencils are the smarter investment because of long-term use, and praise your child when he/she makes the right financial decisions.
4 – Learn How a Credit Card Works
There are several ways you can teach your child about credit cards. You could put his or her allowance on a prepaid card and show your child how to monitor funds digitally. If you want to treat the prepaid card like a credit card, have your child make monthly payments to replenish the funds.
You could take this idea one step further and add your child as an authorized user on your credit card account. A recent study found that 46.4% of young adults had credit scores above 680 after being an authorized user in their teens. By comparison, only 27.7% of non-authorized users had scores above 680. Think carefully before making this decision though. If your child charges your account, you are still financially responsible for it. Make sure your child is old enough and mature enough to handle this responsibility, and instill as many credit lessons as you can along the way.
5 – Experience Budgeting on a Reduced Allowance
Many Americans are living on a reduced income because of the coronavirus outbreak. You may have already cut back on personal expenses as a result of this. Put your child through a similar scenario to teach about budget adjustments. Do not sacrifice savings. Your child should still put the same amount into savings, and then make changes in other parts of the budget. Adaptability is critical in times like this, and your child will benefit greatly from the experience.