Kids learn the basics in school–reading, writing and arithmetic. But schools avoid almost any instruction about money. If they do offer a class, it may be an elective in high school, long after habits have been formed.
It’s important to start talking about finances early, when kids are young. You can begin to share your values and help them shape their views on money in a culture that places a premium on “things,” not savings. Here are some practical tips to help your kids and grandkids get on the right financial path.
Teach delayed gratification. This is the hard part. Some of us are better than others, but few have truly mastered the art of patience. Look at it another way for kids. Anticipation can be half the fun! It’s the journey. Think about it: your kids awaiting the arrival of Santa, or the excitement that precedes going to an amusement park or on an upcoming family trip.
If they want to buy a pricey item, help them save for it. You can lend support by setting up various methods for savings. We remember the piggy bank. Money goes in, but never really comes out. Instead, set up three jars. One for savings, one for giving, and one for spending.
Kids need money to learn. Theory without practice won’t work. Kids need a hands-on lesson. You may start with an allowance. What is an appropriate allowance? According to a study by RoosterMoney published by [[https://www.thebalance.com/what-is-the-average-allowance-for-kids-4177812 The Balance]], the weekly allowance earned by an 8-year-old averages $7.27 per week. At 12, the allowance is $9.85 and $12.26 at 14. The study offers reasonable guidelines, but you may adjust at your discretion.
What about birthday gifts, Christmas gifts, etc.? Set goals with your children, but I lean heavily toward the savings bucket. Those annual gifts will add up over the years. Your kids could graduate high school with a tidy sum of cash if they have the discipline to save.
Seek teaching opportunities. Before the Great Recession my boys would whine about all the “stuff” other kids had that they didn’t. I used the opportunity to discuss buying with debt and explained to them that having “things” did not always equate to having money. Unfortunately, the recession exposed the financial situations of many of those families, but it did help solidify in my children’s mind what a disaster overspending can be.
In addition, consider using lists when shopping. Your children will see that it helps avoid impulse buys. And, as kids grow older and the discussions are age appropriate, explain why you try to avoid impulse purchases.
Use various examples from your life when you teach your kids about the importance of money and savings. Be open with them about the mistakes you’ve made or that you’ve seen in your life.
Encourage summer and after-school jobs. Trading time for cash via a job helps kids learn the invaluable lesson of hard work. It also supplements savings and provides spending money.
Cutting the grass or the neighbor’s grass, shoveling the snow or the neighbor’s snow, yard work, a lemonade stand, babysitting, helping in the family business, working retail, household chores, or acting as a lifeguard are options.
Besides the extra cash, they will learn a strong sense of pride and responsibility that will carry over into adulthood.
Open a savings account. Not that long ago, a savings account earned a respectable interest rate. That’s not the case today. I remember the first savings account I opened for my youngest son. I was excited to show him his first statement so he could see the penny in interest earned. He told me he wished the bank would have just credited him with the cost of mailing him a statement showing he earned a lousy penny. That lesson was worth more than I even realized.
Even at low rates a saving account helps kids learn basic financial concepts. As they grow older help your working children understand the value of an emergency fund for unexpected expenses, and make them use it sometimes.
As they grow their accounts, discuss the benefits of investing with your kids. Outside of a college savings account, you may open an account in their name and teach them about investing. You could start it with seed money and have them contribute on a regular basis. Guide them through the differences between an interest-bearing savings account and the potential long-term growth and fluctuation of an investment.
If you’re unsure about how to start the process, we’d be happy to point you in the right direction.
There’s an app for that. Today, there are mobile apps that can help kids. Bankaroo, iAllowance, and PiggyBot are just a few. Feel free to look online for one you feel is most appropriate for your child.
Guide them with goal setting. Encourage them to set savings goals and practice patience. Help them come up with a plan and incentivize with matching funds. Companies do this with 401ks, why can’t parents?
Define needs vs. wants. Discuss the importance of needs versus wants. My kids used to find it annoying when they would tell me they need a new game or toy. I always asked, “Tell me, is that a really a need or is it a want?” Sometimes they would get creative reasoning as to why it was in fact a “need”, but then we would sit down and come up with a savings plan to buy that toy. Occasionally they would even talk themselves out of buying something because it didn’t seem worth the price if they had to pay for it themselves.
Money isn’t everything. Yes, it’s important. It gives us choices and freedom. But by itself, money can’t buy happiness.
Let them make mistakes. [[https://www.marketwatch.com/story/want-your-kids-to-be-better-with-money-let-them-practice-with-it-2018-12-03 Ashley LeBaron]], a graduate student at the University of Arizona, said, “Let them make mistakes so you can help them learn from them, and help them develop habits before they’re on their own, when the consequences are a lot bigger and they’re dealing with larger amounts of money.”
Not surprisingly, her research showed those who had practical experience with money learned how to work hard, how to better manage money, and how to spend it wisely. That may be the most important desired outcome.