Today’s lessons will pay off tomorrow.
Kids may not always listen to the life lessons we try to impart, but when it comes to money they are an amazingly attentive audience.
A recent survey found that 65 per cent of kids approach their parents about money matters. Providing guidance about managing money when kids are young will set them on the course for a lifetime of financial responsibility and long-term security.
Shape savvy spenders
For Megan Lynch, whose daughters are ages 5, 3, and 10 weeks, understanding money is an important life skill. “It took me a really long time to learn to budget and get my credit on track,” says Lynch. “I want my girls to know that being responsible with their finances will reap better rewards than the instant gratification of just blowing it all.”
It’s important to help kids distinguish between wants and needs. They will become more prudent spenders who fulfill needs first and save for wish-list items to purchase later.
Lynch’s girls use a piggy bank to watch their money grow. “We are trying to teach them that saving up for something special takes time and patience and in the end, they are always proud of how much money they were able to save,” she says.
Teach basic budgeting
For novice money managers offer budgeting and planning tips. Trish Batten provides guidance to her 9-year-old daughter Kendall, then gives her the freedom to make her own decisions about how she spends money.
“Recently Kendall had a goal to save up for a pet,” says Batten. “But then she went through a “Canadian Girl” doll catalogue with a friend and chose to dip into her money for that. Her savings for a pet dwindled significantly for what a 9-year-old is able to save up and she is just now realizing it.”
Allowance is another tool for teaching kids basic money skills, like spending and saving. Some parents pay kids a dollar for every grade, others a dollar for every year. It doesn’t matter what system you use. What matters is that your child gets to handle money, make decisions, and develop a sense of responsibility and independence.
When her three kids first got an allowance, they spent it all right away, says Sandra Raymond. “They gradually learned that impulsive purchasing doesn’t pay off – things break or they simply don’t like them anymore. Or they want something else instead.”
They also began to understand the concept of saving, says Raymond. “They learned that if they want something and they don’t have enough money, they have to save their allowance for two or three weeks or whatever it takes.”
Talk family finances
Early on, lead by example. “Kendall sees when we give to charity, save money, pay bills, use coupons and such,” says Batten. “We talk about what we are doing and why we are doing it.”
Once your children enter junior high or high school, involve them in family budget discussions to help them understand weekly expenditures. Divide the week’s expenses into envelopes. Even if you wish your finances looked different, be truthful. The lesson? When a child sees that money isn’t in the budget for the designer jeans she wants, she can save some of her own earnings to purchase them.
Open a savings account
By the time your kids are 7 or 8-years-old, encourage them to put birthday money or allowance left over at the end of the week into a savings account in their name. With a savings account, children learn about interest and how their money can grow. To get her started, consider matching your child’s already accumulated savings.