Teaching kids about money
6 valuable lessons
Give them control of money. If kids don’t have control of money before adulthood, they learn that money will always be provided for them, that they don’t have to be responsible for their spending or their future. And when they finally get control of their own money, they apply those lessons, by spending liberally and not worrying about the future.
Instead, give your kids control of money. Take some money that you already have in your budget, and give them control of it. For example, if you currently spend $200 a month on eating out (to use a random figure), perhaps give your child control over $50 of that. And do the same for clothing and toy spending — don’t add to your budget, but allocate portions of your budget to them. Give them complete control over that money.
The result will probably be that they spend too much on frivolous stuff. At first. But when they want other things, they’ll have to learn to save for them, and cut back on other areas. Eventually, they’ll learn how to make decisions, through trial and error. It could take awhile, but it’s better they learn now than when they’re adults.
Teach them to save for money goals. Once they realise that there’s more to money than just spending on whatever their latest impulse is, they’ll want to buy something larger than the amount they have on hand. That’s when you teach them about savings goals.
“You want to buy an Xbox 360? Well, let’s find out how much that costs. Now that’s how much you’ll need to save. If you take $40 from your monthly budget, you could have that in 5 months. If you take $60 from your monthly budget, you could have it in a little over 3 months. But either way, that will mean cutting back on McDonald’s and buying little toys every weekend.”
You might also create a chart on the computer, that shows their goal, and little savings milestones along the way. That way they can get excited about watching their savings grow.
Teach them that reducing expenses makes goals come faster. This goes hand-in-hand with the above lesson, and if you teach them about savings goals, they’ll probably learn this lesson on their own. It’s common sense, and kids are smart enough to figure it out: if I want to get to a goal faster, I have to save more … which means spending less on other stuff.
But it’s worth reinforcing with a discussion about spending and saving, and by talking to them about the decision they’re making every time they spend money.
Teach them about creating a budget. It doesn’t have to be a complicated budget, but what you really want to teach them is how to plan their spending, instead of having a big wad of cash that keeps getting smaller with every impulse buy. Something simple, like $30 for savings for a bike, $30 investing for a longer-term goal, $20 for a birthday gift for mum, and $30 for spending. Then teach them how to split the money up and how to keep within those planned amounts.
Make it simple and easy, so they don’t grow up thinking that budgets are hard and onerous (like many of us grew up thinking). If they get into the habit now, it’ll pay off big time when they grow up.
Teach them to pay bills. Does your teenager have a cell phone? Who pays the bill? Give them the amount in their monthly budget, and allow them to pay the bill each month. If they’re late, the service will be cut off. They’ll learn to pay the bill on time. Other bills could include a car (when they’re of driving age), cable TV, Internet. If you let them pay any of these bills, you’ll probably want to monitor them to make sure they’re actually making the bills.
- Teach them about the dangers of debt. This probably isn’t a lesson they can understand when they’re 6 years old, but when they’re teenagers, they can grasp the concept. You’ll need to discuss things like loans, credit cards and other debts. If you want them to learn by doing.
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