Teach Kids Healthy (Money) Habits
Most parents today are doing their best to teach their kids healthy habits: we read to them, give them healthy food, get them to bed on time and encourage activities that will boost their confidence and teach them to persevere. The ultimate goal is a child that grows up to function in society to his or her highest ability. But as hard as we try provide them with the toys and lifestyle we think they need, we are not always teaching them the skills needed to maintain that lifestyle once they are out on their own. By neglecting to teach children the basics of money management, many parents are inadvertently setting their kids up for stress and failure down the road.
Begin The Conversation
Kids need to understand that, if your home is not paid off, the rent or mortgage comes first. Groceries, payments and bills come next. Kids as young as three years old can begin to learn that once money has been spent it is gone until more has been earned. Don’t scare them, but be honest, and use age-appropriate examples to help them understand. If you have experienced a loss of income and have had to adjust your lifestyle, sitting down to create a family budget that kids can understand might help take the stress out of dodging requests for toys and money. Within reason, including older kids in discussions can empower them to help save towards family goals. Using a chart to illustrate progress towards saving for a vacation, for example, is good motivation to curb other discretionary spending. Be sure to discuss privacy and tell the kids only what they can handle without causing them to feel stressed.
Set an Example
Even if you are a smart shopper and stick to a budget every month, your kids may not be aware of the skills that you are using. They may observe you buying what you want and need and not realize that you have carefully set aside the money to do so. On the other hand, kids may also watch their parents spend on things they cannot afford and develop the belief that bad debt is just a way of life. Remember that your children are learning from what you do as well as what you say. Recognize opportunities to discuss how and why you are spending and resist the urge to “preach”. If your child grows up feeling comfortable discussing money with you they may avoid costly mistakes later on.
Learning to Spend Wisely
It is tempting to deny children access to money—if they don’t have it they can’t waste it! But experts agree that kids must receive money in order to learn to spend it wisely. At the same time, experts caution against giving an allowance for doing simple household tasks. Teach your kids that helping out is expected of them as a member of the family and keep their allowance a separate transaction.
Randomly purchasing what kids ask for ensures that they will always desire the next new thing that they see. By providing an allowance (however small that may be in today’s reality) and allowing them to shop for themselves, kids learn to wait until they have enough money for what they want. When spending their own money, they will also be much choosier about what to buy. Learning to delay gratification is very important for kids and is something that many adults need help with, too.
Saving and Giving
Money experts agree that dividing a child’s allowance into separate jars or containers is an effective way to teach them to save for different purposes (because we all do that, right?). Do what works for you, but an example is 10% towards both short and long-term goals, 10% towards charity and the remaining 70% used at the discretion of the child (within agreed upon guidelines). At first, you may dread seeing more cheap plastic toys being brought into your home. But, given guidance and time, having access to a small amount of spending money teaches kids responsibility and thrift.
Kids today are inheriting a world that is increasingly unpredictable; the drop in the price of oil is just one example of that. Teaching them to handle money wisely is one more way you can prepare your kids to cope in changing times. Allow them to make some financial decisions while they are young so that they can learn about buyer’s remorse and debt on a smaller scale. Let them discover that there is as much reward in helping those in need as there is in purchasing a new gadget. It will be a relief to watch them move on to independence knowing they have the skills to live within their means.