Nine Steps to Raising Money-Smart Kids
Photo Credit: GraphiDA, Unsplash
Key Points
Children learn by doing. Give them as many opportunities as possible to:
■ Save money
■ Spend money
■ Earn money
Taking children through real-life transactions can help them learn the value of money and the need to manage their finances properly. Encourage youngsters to earn money in addition to their allowances and to learn about prices.
There are several strategies to instill healthy financial habits in your children. You may tell them tales from your past about how you used to earn, save, and spend money. You can underline the need to be prudent with their money. The ultimate truth, though, is that experience is the best teacher. The idea is to let your kids learn by doing.
Here are some ideas to help your children learn to save and handle money. In addition to the short-term benefit of having children who understand that money does not grow on trees, you will be imparting financial responsibility to them that they will carry into adulthood.
Get Them Interested in Money Early
Show your children how to tell various coins apart while they are young (maybe three or four). Then give them a piggy bank to keep their spare cash in. A piggy bank (or even a wallet or handbag) is a physical area where they can store their money safely.
Choosing a transparent piggy bank is usually preferable since your youngster can hear, feel, and watch the money accumulate. Let your children spend money on delights after they have started saving when there are only a few pennies in the bank and when it is full. They will discover that a little bit in the bank buys a modest pleasure, but a full bank allows them to buy something wonderful.
Try playing games with your older children to help them grasp the difference between necessities and wants. Ask them to assess if each product sold on billboards or television, for example, is a necessity or a desire. Calculate their score, and after they have gathered enough points by correctly guessing ten or more questions, reward them with a prize.
Make Saving a Habit
Consider setting a house rule that children must save 10% or more of their income, regardless of whether that revenue comes from a neighborhood lemonade stand, their weekly allowance, or a part-time job.
If applied while your youngster learns about money, your approach should face little opposition. Yet, if you do not provide some rules, your child is unlikely to take the initiative and save independently.
Saving money is a talent that can be taught. All you have to do to uncover confirmation of this is remember back to when you were a youngster. Would you have saved the money you received from a relative on your seventh birthday if your parents had not guided you?
Open a Savings Account in Their Name
Like a piggy bank, a bank savings account may show children how their money might grow. It can also teach kids how money can create money independently through compound interest. Begin by providing your children with a compound interest table (available at most banks) so they can forecast how their money will increase.
Make it a point to visit the bank regularly. Although many individuals choose to save through direct deposit these days, showing your small child that you make frequent, diligent journeys to the bank might mold their saving pattern.
The ability to engage in adult activities lets children feel mature and responsible. For example, children accompanying their parents to the bank typically want to fill out deposit slips. Why not try it out for real?
Encourage Goal Setting
Make a wish list for your children and set a deadline for attaining the goods on the list. Your child, for example, may desire in-line skates at the end of the summer or a mountain bike by next year. Visualization may provide children with the extra drive they require to save.
You might also give an equal amount each time they save a particular amount. A youngster would find such a promise as enticing as you would if your employer informed you that the firm would match every dollar you saved beyond $10,000.
Not only can such an arrangement motivate them to work harder to achieve their objectives, but it may also prevent them from believing they will be old and gray before accumulating enough money for an item on their wish list.
Give Regular Allowances
Allowances expose children to real-world money issues, allowing them to learn how to save consistently, manage their expenditures, and be self-sufficient. Of course, choose the amount of allowance you believe is appropriate for their age and breadth of obligations.
Some parents believe they do not need to pay allowances since they freely provide money to their children when needed. Yet, children who get money from their parents as required may have less incentive to save than children who receive allowances, even if the overall amounts received by each group are the same.
While you will, of course, determine when to begin giving allowances to your children and how much to give them, consider the following guidelines:
■ Do not grant them too much independence by telling them they can spend their allowances on whatever they wish. Encourage them to save at least some of their allowance and advise them to spend the rest wisely.
■ Do not take away allowances as punishment. Allowances are an educational tool, not a disciplinary one.
■ Carefully consider allowance increase requests. Discuss with a child why they are making such a request. Spare yourself weekly petitions for increases by telling your children they can ask for them only twice a year, and then stick to your rule.
■ Do not reveal too much about your own finances when justifying reasons not to grant a raise in allowance. Explain that your budget is limited and that there is no extra money for a higher allowance.
■ Do not be too generous. Too much money in a child’s hands can breed careless spending habits.
Help Plan a Budget
Ask your children to keep track of everything they buy each week and how much each item costs. Then record their weekly earnings. If the two sums do not equal, people must prioritize their requirements and desires.
Let them choose one special treat at the grocery store to practice making complex selections. Having to navigate ten or more aisles while knowing they can only select from one helps youngsters grasp that spending involves making decisions.
Just as you understand that mending a leaking roof may necessitate postponing your tropical trip, your children will realize that choosing an action figure during a store visit means preceding a candy bar on the way home.
Encourage Money-Earning Ventures
Encourage your children to devise original ways to create money to supplement their weekly allowances. Urge them to carry out particular household tasks or to look for employment in the neighborhood, like raking, mowing, pet sitting, or shoveling snow. Many folks in your community, especially senior adults, would appreciate someone coming by on a regular basis to take care of items for them that they can no longer do, like picking up the trash or raking leaves. Your child has the ideal chance to help someone in need while also earning some money. Continue supporting that entrepreneurial drive when your child starts their first real job.
Show Them The Effects of Inflation
The best tool to use is the internet. Take your children to the library to search through advertisements for movie tickets, motorcycles, and sneakers in the newspaper archives to demonstrate how costs have grown over time. (Try to figure out what year they were born.) Data on everyday purchases such as bananas and gasoline are published by the US Bureau of Labor Statistics (bls.gov). This knowledge may give your children both a financial education and a history lesson.
Your children may use their arithmetic abilities to determine how much goods they are saving for will cost in the future, knowing that product and service prices will almost surely grow. With 4% inflation, a bike that costs $150 now may cost $180 in five years.
If they are of legal drinking age, inform them there are options to stay ahead of growing prices, such as investing. While investing may not interest them now, they must know about financing options.
Most Importantly, Give Them a Head Start
Your children's financial practices may prepare them for adulthood. While you may be proud of the 12-year-old who saves enough money to buy a $400 bike, you may be even more proud of the 22-year-old who can move into their first apartment without needing a loan or the 32-year-old who can use their savings and investments to make a substantial down payment on their first home.
Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.
Portions of this article were sourced from the work of MFS Heritage Planning. Neither MFS nor any of its subsidiaries are affiliated with Optima Capital Management.
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