Here are a few tips to help teach valuable money lessons:
One of the most powerful life lessons and good money habits anyone can learn, especially while they’re still young, is how to set and achieve money goals.
A great goal is Specific, Measurable, Achievable, Relevant and Time-Bound, also known as a SMART goal. Your child should know exactly what they want to achieve and have a way to measure progress so they know their goal is realistic. Additionally, their goal should impact them personally so they can stay motivated. Lastly, the goal should have a specific timeframe by which they want to achieve it.
Make it relatable
Kids often engage and find money conversations relatable when it is interactive and/or entertaining. Rather than talking about goal-setting, saving and budgeting in the abstract, make lessons interesting — and personal — for your kids by asking them what they want to save their money for. For example, let’s say there’s a new video game console that costs $300, and they received $100 cash in holiday gifts.
Using interactive visuals or a fun activity can help your child track their progress and stay engaged as they work toward their goals.
Draw a thermometer shape on a piece of paper. Label the bottom with $0, the top with $300, and add markers in increments of $25 vertically up the thermometer. Then, fill in the bottom one-third of the thermometer and label it with $100. Show your child how this $100 gift money already achieves 1/3 of the savings goal. Explain further that each time they save $25, they can fill in another $25 section on the thermometer. Once they fill the thermometer to the $300 mark, they will have enough money saved to buy the video game console.
Although kids’ ability to earn money is more limited than adults, they still might have expenses and goals for which they can budget. For example, they may want to go out with friends, buy new clothes, or get the latest gadget. During the holidays, there may be even more things they would like to do or buy, creating lots of opportunities for parents to initiate conversations about budgeting.
Start by teaching them about needs vs. wants by listing their money income sources — inflow and outflow. This could include allowance, money from doing chores, or earnings from a part-time job. Then, have them list all necessities and extras you expect them to pay for themselves, such as movie tickets, snacks and video games. Then, explain how subtracting their total expected expenses from their total income will reveal how much they have left over for discretionary spending. Finally, consider helping your teen allocate an amount for gift-giving they could use as an “expected” expense. Setting aside an amount for gifts helps your child learn to prioritize certain expenses to ensure they are on track to achieve goals before spending on discretionary items.
If there is not enough left over for the things your teen hopes to do or buy during the holidays, such as that video game console, have them determine how much they need to save and help them create a plan to earn the extra money.
Once your child has a money goal, you can teach them how to work on a savings plan.
In our video game console example, your child needs to save $200 more to reach the goal. Brainstorm with your child how they can earn the rest of the money. Maybe they can do extra chores to earn cash, set up a lemonade stand on the weekends, or shovel snow for the neighbors. You can also talk to your child about your family’s savings goals and how you are working towards them.
Consider opening a savings account in your child’s name and teach them how to deposit the money they earn. Create a habit of reviewing their account balance with them every month so you have another visual for them to track their progress. Then, celebrate with them when they reach their goal.
Initiating money discussions during holiday activities may help your child develop good money habits they’ll benefit from for years to come.