2 ways to help your kids make good financial decisions (according to psychologists)

In an age where Instagram posts flaunt the latest high-end fashion trends, TikTok videos showcase lavish vacations, and influencers endorse expensive gadgets, kids are exposed to a constant stream of materialistic messaging, often coupled with thousands of “finance bros” touting the latest “get rich quick” schemes in every corner of the internet.

As a result, social media has created a culture of instant gratification and conspicuous consumption, making it more important than ever for parents to teach their kids how to have a healthy relationship with money.

Financial literacy and budgeting are life skills that have a significant impact on an individual’s mental health and overall quality of life. Teaching children about money management from an early age can have a positive impact on their mental development and financial success as adults.

2 reasons why financial literacy leads to child success

1. Financial literacy builds character

Teaching your child to save up to buy something they want helps them develop the ability to postpone desires. They learn that patience is rewarded by gradually achieving financial goals, rather than making impulse purchases. This process helps them understand that short-term desires are manageable and that investing in long-term goals can be very beneficial.

Research suggests that postponing cravings can positively influence financial decisions, inhibit risk-taking behavior, and encourage individuals to exercise self-control and avoid debt.

Plus, as kids learn to save for the things they want, they may develop confidence in their decision-making abilities, which can then be reflected in other areas of their lives, like their schoolwork and personal goal-setting, boosting their self-image and overall mental health.

2. Financial literacy shapes financial well-being

Skills like budgeting foster responsibility. Learning to create and follow a budget gives children the insight to make informed decisions about spending. This process helps children develop a sense of responsibility while ensuring that their spending is in line with their financial plan.

According to a study published in 2021, Financial Counseling and PlanningThe spending habits and attitudes toward money formed in childhood also have a major impact on financial behavior in adulthood. In other words, the earlier budget discussions begin in the home, the more likely your children will grow up to be financially responsible adults.

Here are three techniques to help equip your kids with the knowledge and skills they need to confidently navigate their financial future.

• Model responsible behavior. Children often learn by observing the adults around them, and by consistently demonstrating healthy financial habits like budgeting, saving, and thoughtful spending, adults can set a strong example for kids to emulate.
• Normalize financial literacy in everyday life. Consistency is key in helping your child understand and retain financial principles. Adapt these concepts to your child’s developmental stage, gradually introducing more complex concepts as they get older. Incorporate money conversations into everyday life regularly, like grocery shopping, budgeting for family outings and discussing the value of work.
• Provides experiential learning opportunities. Hands-on experiences are essential to reinforcing financial lessons. Providing children with real-world scenarios, like managing small amounts of money, saving for specific items and participating in family budget decisions, allows them to practice financial skills in a safe environment.

As children learn to wisely manage their assets, weigh options, predict consequences, and make informed decisions about their finances, they develop responsibility, independence, critical thinking, and problem-solving skills that reduce financial stress in adulthood, help them make better financial decisions, and give them a greater sense of financial security throughout their lives.

Do you think your spending habits are affecting your child’s financial literacy? Take this quiz to find out: Excessive purchase scale