Parents are always trying to teach their kids the ways of the world with the hope that those kids will grow up into responsible teenagers and productive young adults. I know I do. I try to teach my daughter valuable lessons – look both ways before crossing the street, be respectful, and always say please and thank you.
The lessons we teach our kids will (hopefully) stay with them for the rest of their lives and set the foundation for who they’ll grow up to be. Wouldn’t it be great if we could instill good money values in our kids at a young age, just as we do good manners? As parents, we don’t want to see our kids endure tough times. Learning good money habits at a young age can help your children avoid financial struggles when they are older. Consider these three money lessons for kids.
Talk Honestly About Money with Your Kids
Sometimes, it can be tough to figure out the right way to talk about money with our kids. We don’t know how to start the conversation. We’re not sure what’s age appropriate. We don’t want our children to know our own financial struggles. Money is a difficult topic to navigate, but it’s essential to talk about money with your children. How are we to teach our kids the right way to spend, save, and invest if we don’t have honest conversations with them?
Children are curious and will ask questions about money. Take advantage of these questions to create teaching moments. Ron Lieber, New York Times “Your Money” columnist and author of The Opposite of Spoiled, recommends starting the conversation by answering your child’s money question with another question: Why do you ask? When your child answers, you’ll better understand where the question is coming from. This also will give you a bit of extra time to come up with a tactful and honest answer.
Give Kids An Allowance
An allowance is one of the best ways to help children learn how to spend and save. Using money wisely is a skill. Allowances help children to develop these skills while the stakes are still low.
Also, saving up an allowance for a special purchase allows children to practice an important life skill: patience. Social scientists have found that children with more self control are more successful in many ways when they’re older, including with money. One classic study dubbed the Marshmallow test gave children the choice between one marshmallow to eat right away, or two marshmallows if they were able to wait alone for up to 20 minutes. The children who were able to wait generally had better outcomes.
A more recent study in 2011 followed 1,000 children from birth to age 32, and children with higher levels of self control also had a higher savings and home ownership rate. If children practice delaying gratification now, they’ll be better able to handle the desire to spend when they’re older, too.
Create A First Budget
In order to encourage good money habits, consider making it a practice to divvy up your child’s allowance into three categories: spending, saving, and giving. This very simple budget lays the groundwork for good money habits in the future.
Use a spending jar for fun money, where your child can spend without too many restrictions. Then work with your child to create a goal for the savings bucket. As a guideline, the younger the child, the smaller the savings goal. You want your child to remain enthusiastic about the idea of saving, and six months is a long time for a six year old.
Lastly, set aside some amount of the allowance for giving to others. Work together with your child to pick a worthy cause. How excited would a child be to donate money to the local zoo, and then go see the animals he or she is helping? It’s a tangible example of helping others.
As your children get involved in the allowance process, they’ll have some money to spend freely. But they’ll also learn about the pleasure of saving for a toy and the importance of thinking of others.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes everyone should have access to financial resources and coaching. For more information on the services offered, contact Katie today.