Teaching Kids about Money and Financial Balance

Teaching kids about money from a young age is one of the best ways to help set them up for a financially secure future. Start by guiding them on how to manage a bank account, explain what debt means, and encourage smart financial choices. These skills will give them the confidence to handle money responsibly as they grow.

The earlier kids understand these concepts, the more prepared they’ll be to manage their finances and avoid common money mistakes. Building a strong foundation in financial balance from the start sets them up for making thoughtful decisions as they gain more independence.

Understanding Financial Balance

Personal financial balance refers to a person’s snapshot or summary of their financial position at a specific time. This summary includes their assets, which are what they own, and liabilities, which they owe. With this information, a person can calculate their overall net worth.

Although this concept may be difficult for a child to grasp at first, with patience and kindness, they can eventually understand what it means and how it applies to their current level of understanding. But why is it important for them to learn this early on? Developing a stable financial balance begins with a solid understanding of money management, which lays the foundation for responsible financial habits in the future.

Teaching this skill early on will equip them with life-long skills like responsible decision-making, financial independence, and money handling.

The Role of Bank Accounts in Financial Balance

Bank accounts play a crucial role in maintaining financial balance, and it’s important for your child to grasp this concept early. In simple terms, they need to understand that a bank account is a safe place to store money and helps make transactions easier.

It’s also important that bank accounts can help them manage their money more efficiently since banks are equipped with tools for managing and tracking finances. After explaining what a bank account is and what it does, it’s essential to introduce them to the two basic bank accounts they can use in the future, starting with a checking account.

Checking Account

A checking account acts like a home base for money that they can use for different bills and other payments. Usually, the money in a checking account is on a short-term basis. This means they can deposit their money, which will be called a balance, in the checking account and withdraw it later to buy items, put it in a savings account, pay a credit card, etc.

Savings Account

A savings account is a place where they can deposit money for it to accumulate. Savings accounts usually have features like insurance to keep the money safe and earning through compounding. The latter is the most common one, which entices people to keep their money in the account longer so it will grow over time.

Understanding Debt

When teaching kids about money and financial balance, especially the part where you talk about liability, there’s a good chance you will talk about debt intensively. This is because liability usually equates to debt or at least relates to it closely. Like all money skills, debt is an important concept that we should explain to our kids early on so they have a better grasp of it in the future.

First, you need to tell them the basic definition of debt: money, services, or goods owed. While debt seems negative at a glance, that’s not all there is to it. Debt is crucial in financing, which your kids need to know.

Practical Ways to Teach Kids About Managing Bank Accounts and Debt

The first thing you should instill in your kids is the value of money. Even a small amount can give a person financial freedom, but with it comes responsibility. They have to learn its importance and how to spend it wisely.

At some point, your child will likely want something that costs more than their allowance. One way to handle this is by teaching them the importance of saving. You can encourage them to set aside at least 10% of their allowance for future use.

As your kids get a little older, you can try opening a custodial brokerage account. Along with gaining ownership of their money, your kid could also learn the importance of managing and researching their assets.

Teach Them Early

Teaching kids about money is one of the best things you can do for their future. When they learn how to save, budget, and manage debt early on, they’re setting themselves up for success down the road.

Forest Rose

Forest Rose is a God Loving, Blessed Wife, &  Mama to 3 girls. She’s passionate about lifting moms out of the trenches that are discouraged, overwhelmed, or feeling alone or isolated. Her hope is to point them to Christ and equip them to rise up with a newfound hope and joy within, that He alone can provide. Besides blogging, she also loves to create printables!