We all want to raise kids who are happy, well adjusted, and, let’s face it – financially successful. But if you haven’t got your own financial life sorted out just yet, how do you make sure to teach kids smart money habits?
T. Rowe Price, the popular investment firm, surveyed over 1,000 parents and adults and found parents have a massive effect on whether their kids have good or bad financial habits.
Give an Allowance
The best way to teach kids about money is to give them small amounts to control. Research has found, children who manage their own money have better money habits than those who don’t.
You can give your kids a set amount each week. Or you can pay them for doing chores or tasks around the house.
You can also start small and start young when teaching your kids about money. Some people give an allowance to kids as young as three years old.
You'll need to make sure you have some dollar bills on hand and set a day and time you’ll pay out the allowance. Or use a digital money app to make it easy. Just like anything with kids, consistency is key!
Related Reading: What are the Best Money Apps for Kids?
Decide on the amount you’ll give. When your children are younger, you can start with $3 a week. As they get older, you may want to double it to $6, and perhaps top out at $10 per week when they’re preteens.
Teach Kids How to Save
To teach kids not all money is for spending, you can use the jars method popularized by radio personality Dave Ramsey.
Create three jars for each child: a saving jar, a giving jar, and a spending jar. The jars don’t need to be fancy – Mason jars or old yogurt quart containers will do. Use a permanent marker to label each jar.
When you give your kids their weekly allowance, have them put $1 in the saving jar, $1 in the giving jar, and the rest in the spending jar.
The act of dividing up their money each week is an excellent way for kids to see and experience putting their money into different places.
You’ll be teaching them it’s always essential to have some money saved for emergencies and to give some money to people or organizations needing help.
Eventually, when your child has built up some savings, you can help him open a savings account paying interest. You can even pick a savings goal, like buying a car when he turns 16. Or saving up for a trip or unique experience when she graduates high school.
From time to time, you can open up her online account and show her how much money she’s saved. For kids, having a financial cushion they never touch helps them understand the security a savings account can bring.
Let Them Spend
After a few weeks, your kids may start talking about the spending jar. They’re ready to buy something. This is a great time to teach kids about delayed gratification.
The toy in question will probably cost more than they have saved. This is the time to explain they have to wait a few more weeks until they've saved enough to buy the toy. And that no – they can’t dip into their saving or giving jars to make up the difference.
You can also allow them to do chores around the house to earn additional money. This a great way to teach kids about making money when they want extra.
They can get it by working for it. It will be hard for them to wait, and they’ll probably whine and complain a little. This is your chance to stand firm and let them know they have to wait and learn patience in the process.
Kids don’t always like learning hard lessons, but they’re crucial for us as parents to teach. When they get older, this money lesson may help them resist impulse spending. That “need it now” attitude can turn into serious credit card debt. And it may be avoided because of money lessons you taught them as kids.
Your kids will probably make at least one terrible buying decision too. It might be an overpriced piece of plastic that falls apart right as she takes it out of the box. Or it could be a Lego set she loses interest in as soon as she puts it together.
When these things happen, you can ask questions about those purchases. “Did the toy make you happy?” “It took you a long time to save for that set. Was it worth it?”
Gradually, your kids will figure out certain purchases, such as buying movie tickets or going out to eat at a favorite fast food restaurant, make them happier than the toy they saw advertised on TV.
These are financial lessons you can’t always teach – they have to be experienced. Which is why giving your kids the freedom to make bad buying decisions with small amounts of money, will help them make better decisions with more significant amounts as they get older.
Show Them Giving Is Important
When we teach our children to give, we’re helping them become more compassionate and grateful.
The giving jar is a way to model kindness for our kids. As their giving jar fills, your kids can research charities they’d like to donate to. It can be a local family in need, your church, a food bank, or a school initiative – like saving money for kids with cancer.
If there is a family with a new baby in your neighborhood, your child could donate part of his giving allowance to purchase the food needed to prepare a meal for the family. And as a bonus, you could make and deliver that meal together.
Talking about their gifts to others is a very powerful teaching tool. “Look how thankful our neighbors were to get a meal from us. You helped make them so happy!”
“It was so kind of you to donate your giving dollars to the food pantry. Lots of families who have trouble buying groceries can go and pick out food now.”
It’s also important not to diminish your child’s contribution just because it’s small. She should see that every dollar counts and that she can make a difference.
Teach Kids Money Habits Consistently
The best way to teach kids about money is to stay the course. If you forget to give them an allowance for a few weeks, challenge yourself to get to the bank for some dollar bills. Then start again.
Or check out a tool such as FamZoo, an award-winning app acting as a private family banking system. It's designed to help parents teach kids to earn, save, spend, and donate money wisely in a safe, friendly environment.
Parents define the virtual family bank rules to match their family’s unique values. And this tool helps busy parents teach their children about money in the most realistic setting possible – daily family life!
Letting your kids be in charge of some of their spending, month in and month out is a great way for them to develop confidence in their ability to manage their own money. You can do it, Mom (or Dad)!
Give an Allowance. Teach Them How to Save. Let Them Spend. Show Them Giving Is Important. Be Consistent.
Additional Reading: What Money Games and Activities Are Best for Young Children?
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Article written by Laurie