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Adorable little girl with curly blond hair. She is smiling a big toothy smile at the camera. She has a jar of coins and cash that she has earned while selling lemonade. There are cups of lemonade and straws behind her. There is even a basket full to the top of lemons. The little girl is alone, she is wearing a light pink shirt.

There’s at least one subject not covered enough in school, even though it’s so essential to life: financial literacy.

Many parents leave it up to the educational system to equip their children with many of the skills needed once they finish school. But it’s essential that financial values be taught at home, too. This can start with simple conversations about money and then progress into actual lessons where the children and teenagers are taught more about finances and related issues, such as how to maintain a good credit score or save up enough for a down payment on a house.

“Our children are watching how we spend, save, invest, and give money,” says financial advisor Kimberly Palmer in “Smart Mom, Rich Mom.” She continues, “We can seek out opportunities to talk about money with our children, even if it’s awkward at times or uncomfortable.”

Age-Appropriate Financial Lessons

It helps to research and study what the financial experts say about training kids in financial matters.

Beth Kobliner, who wrote the New York Times bestseller “Get a Financial Life,” says a 3-year-old can already start to learn some financial concepts. If you start with the concept of saving, then by the time your children are 7 years old, they’ll already have formed some good money habits.

Income Generation and Investing

If you have young teens at home, it’s a great time for them to learn concepts such as making money and then investing it, rather than always spending. What you teach them about their finances should have a global perspective.

According to the National Standards for Financial Literacy, students as young as grade 4 should have a basic knowledge of:

  • The concept that different jobs are available for income resources
  • Income as the money given when someone employs you to do a job based on your skill
  • The concepts of wages, salaries and commissions
  • Interest income from lending money
  • How some people earn by renting out their properties to others
  • The concept of starting a business for profit, as well as the challenges entrepreneurs might face

How You Can Teach Kids About Buying a House and a Mortgage

The following are some easy-to-follow concepts that lead to a better understanding of finances once your children are older and capable of making their own money.

How to Save Consistently

If there is an item your kids really want, teach them that they can earn a little money and then save up for that item slowly. Some parents choose to give their kids an allowance for doing chores or home duties. Others reward them with small amounts after reading books. And still others choose to have their children start on an entrepreneurial path by selling items they’ve made. A lemonade stand is a simple example of this.

The Difference Between Needs and Wants

When you go impulse shopping and your children are around, they may pick up the bad habit of spending just because they want something. When choosing to buy a house, a much greater thing of value, you will need to talk about the difference between homes that have something you need (on-site laundry) versus those with attractions you simply want (a built-in luxury home spa).

How to Listen to Expert Advice

Purchasing a home or paying off your mortgage is a huge decision. Teach your children how to research all options, and then discuss why it’s important to talk with an expert, such as a real estate agent, in order to find all the possibilities and get the best value for the money they have available.

How to Improve a Credit Score

When your children understand the basics of using a credit card, they should learn how to also maintain or improve a credit score. Discuss various credit card options as well as various requirements that have to be met to qualify for the cards, in addition to the perks.

Loans and Mortgages

Your children need to understand the concept that people usually borrow money to buy a house and then have to pay off this loan for quite a few years. This could lead to discussions on debt and how to stay out of it, when to make the major decision to take out a loan, and other conversations about the current financial markets.

Some of the most important terms they should know are:

  • Principal: how much money they will need to borrow
  • Interest: how much money the lender will charge them for the loan
  • Mortgage insurance: protection for their lender in case they default on the loan

Financial Education Is Key

When you make a conscious effort to ensure your children are financially literate, you’re giving them a tremendous gift. They will be able to go out into the world independently when the time is right, armed with the knowledge and preparation needed to face the many financial challenges that lie ahead.

Just think how satisfying it will be to see them able to purchase their own home with their own earnings when they grow up!

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