“NEVER TOO EARLY”
by Contributor
(May 6, 2020) — A day will soon arrive when your little girl or boy will be ready to leave the nest to pursue their life goals. One of the key life lessons to teach children, no matter what age they are, is how to save money. When kids learn about saving from an early age, they will eventually learn good fiscal hygiene when they begin managing money independently. We’ve pulled together some easy ways to prepare kids on how to spend money wisely and save some for a rainy day.
Explain the basics.
By the time your child is about eight years old, they will be able to grasp basic concepts regarding money. Begin by introducing the concept of wants vs. needs to help them distinguish between what’s essential vs. what’s nice to have. Draw up a simple family budget, explaining to them your household income and expenses, and then do the math to show them how much remains that can be saved. This will show young minds that they don’t need to buy everything their heart desires. Rather, they should live within their means to ensure they’re left with something to save.
Offer a practical experience.
Kids will learn better when they’re actually able to practice what they’ve been taught. This is where allowances/commission come into play. Offer kids allowances in exchange for chores, which will allow them to earn their own money. Giving kids money in return for chores will teach them that money needs to be earned. It’s a good way to highlight the importance of hard work over easy money. Their allowances will give them a small fund to work with and implement the concepts of earning, budgeting, and saving.
Give them a target to save for, which will encourage them to work more or spend less. For example, if they want to buy a $50 video game and they receive a $10 weekly allowance, help them figure out how much time it will take for them to reach that goal. This is the best way to teach kids how to cut back on other expenses to achieve larger goals.
Open a savings account.
Kids will be encouraged to save if they know where to stash their funds. While little kids and preschoolers will be happy to deposit their pennies and bills in a piggy bank, it’s a great idea for older kids to have their own savings account. Account statements and regular tracking will show kids that saving money yields dividends and can help grow their wealth in the long run. A savings bank account is also a good way to introduce kids to the concept of compound interest and how it applies to funds deposited in a savings account. Seeing their funds multiply over time will make them aware that the more they save, the more their money grows.
Take them to the grocery.
One of the best ways to teach kids about curbing impulse purchases and making informed buying choices is to take them with you to a grocery store. It takes just a few seconds to explain to your child why a generic store brand is as good as a premium label, and how purchasing a store brand can help save valuable $s, which add up to significant savings in the long term. A trip to the grocery store provides many opportunities to show kids how to weigh in the value of a product concerning its price. It’s a practical lesson that will stand them in good stead when they begin to live independently.
Shopping, in general, whether at the mall or a grocery store, is also a great opportunity to lead by example and show your kids that you don’t buy things on impulse. Making a list before heading out to the grocery store will teach kids that a little planning goes a long way in preventing hasty spending decisions, which you may later regret.
Talk about money and finances.
Make money chats a part of your daily or weekly agenda. Don’t be afraid to discuss your own financial constraints, budget, and saving plans with your kids. Kids will often get inquisitive and end up asking questions such as, “Are we rich?” These questions give you the opportune moment to tell your children about how hard it is to earn money, and wealth can easily be squandered from irresponsibility and living beyond your means. Encourage an interactive discussion that will help instill the right values kids need to forge a healthy relationship with managing money.
Don’t shy away from warning them about consequences.
Parents often don’t want to influence young minds with negative talk. While this may be true in certain scenarios, an older child is mature enough to understand the cause-effect mechanism. There are many family-centered digital publications such as the WM lifestyle magazine that feature inspiring stories and editorials on how families, businesses, and individuals cope with financial setbacks and emerge victorious through their timely actions. Direct your teen to such reputed digital resources where they can learn more about making wise financial decisions, and enable them to realize how their actions eventually have an impact on how their finances and life shape up.
Discuss loans and debit.
Credit, debit, bankruptcy, etc. are tough topics to talk about. Yet, you need to underline the importance of not falling into debt traps for unnecessary purchases. You can explain to your kids that not all “debt” is bad, and they will likely need it at some point in their life for big and important expenses, such as college education or when buying a new home. This will limit their urge to borrow and take loans and do it only when absolutely essential, teaching them wise money management skills.
Key Takeaway
Talking about money with kids isn’t always easy. It can be intimidating and challenging at first. Discussing important concepts such as income, expenditure, credit, debit, loans, and savings will help your kids cultivate strong financial habits. It’s never too early to begin teaching them about saving and spending wisely, which is the key to building a good credit score and avoiding debt. Start with our easy tips and build on them to educate your kids on how to save money.