As parents, we want the very best for our children. In our efforts to provide for them while balancing work, life, school, and everything in between, it can be challenging to remember to find time to teach kids about money. There is no manual on parenting, much less one for teaching kids how to build a solid financial foundation. However, focusing on a few money lessons can help your child build a better financial future.
Instill good money habits
Teaching kids about the concept of working, or adding value, in exchange for money can be quite valuable. Consider paying your children for extra chores they do around the house, so they can earn a bit of extra money. Explain to your kids that getting money requires effort and work, helping them connect money with working.
Help them plan what they do with their money. For younger kids, a visual representation is usually the best way to help them absorb the lesson. For example, when the child gets paid, have them place their money in different glass jars in a specific order. Label the jars with options like "save," "spend," and "give" and help your kids divvy up their earnings among the three.
By teaching them where to place money, you teach them the habit of managing their money and learning to live within their means. Once they start to save over $100, consider opening a savings account for them and let them make deposits.
Teach the basics of budgeting
There are three foundations to good financial habits that you can teach your children.
- Save regularly: The jars or buckets method will help them learn how to set aside money for things. Encourage them to think of something they would like to save for and help them make a savings schedule. Together, you can calculate how much the goal costs, decide when they would like to reach their goal, and determine how much they need to set aside per month to achieve that goal.
- Spend wisely: When your child earns or receives money, take some time to focus on the "spend" bucket. Talk through the purchases they want to make and how it aligns with their overall goals. When they do make a purchase, consider making it in cash so they have a visual of the impact their purchase has on their total spending budget.
- Find ways to earn money: Encourage your child to use their hobbies or skillset to earn money. Celebrate the hard work they put into earning income and encourage entrepreneurial thinking.
Let them be your shadow
Give older kids an opportunity to learn the business of managing the household finances. Perhaps seeing what it takes to run the household on a certain income will help them understand how fast money can come and go. Gather a list of all the monthly household expenses. If you have a spending plan or budget in place, walk them through it. Show them child care receipts and school supply expenses. These real life examples can help them understand the importance of budgeting.
Look for opportunities to teach your child the advantages of good financial habits during real-life situations. For example, teach the value of work and saving money toward a goal.
Especially as kids get older, be discerning when they come to you with unexpected financial requests. Determine if the situation is truly out of their control or if their "need" is the result of poor decision-making. Discuss what happened and help them decide an appropriate way to manage the unexpected expense. Share a similar experience of your own, if you have one, and how you handled it, for better or worse. And, of course, talk about how both situations could have been avoided. The road to healthy financial habits may have a few potholes in it, but how you manage them is what matters most.
No matter your child's age, you have the opportunity to teach them the foundations of financial wellness today, and set them up for a bright financial future.