Some people are better at managing their expenses than others, but money management is definitely a skill that can be learned. What some people don’t realize, however, is this that money management is a practiced skill that builds over time. Like many skills (e.g. learning a language or an instrument), learning how to earn money, budget and spend money are things that can be introduced in childhood. If you’re not already teaching your child about how to be financially savvy and are unsure of where to begin, we’ve got a few ideas.
Start by giving your kids an allowance. Give them just enough money to buy a few things they really want, but not enough that they don’t have to make difficult choices. Somewhere between 50¢ and $1 per year of age is fine. Suggest opportunities for them to earn more money for purchases like doing more chores, mowing the neighbor’s lawn, babysitting, or part-time jobs for teens.
Even a simple budget for younger kids will help when their expenses become more complex. Starting off, a money-in list can be comprised of allowance and/or a job and the money-out list could include spending, giving and saving. Once your children start keeping a weekly, bi-weekly, or monthly budget, they will be able to see how money management is related to personal responsibility.
Encourage your children to save money. Open up a savings account and talk about how the account grows from deposits and interest. To further motivate your child to save, consider matching some portion of every dollar they save. Help them save more money by having them put money aside right away when they receive their allowance. Tweens and teens can learn to save for larger goals if you require them to save for larger purchases like smartphones. Talk to them about saving for retirement, and why it is important to start saving early in life. As your children get used to saving, they will learn the importance of setting goals and discipline.
Teach your kids how to spend money wisely. Help them to understand the differences between their wants and their needs in life. Show them how to be frugal by shopping around to get a good deal, compare products and prices, limit waste and control impulse buying. You can ban certain items or brands, require that they set aside a portion for a charity or church, but for the most part is to allow them to make their own choices. As your children age, give them more spending responsibilities to strengthen their budgeting skills. If you set aside $30 for haircuts and $50 for new clothes each month, think about giving your child that money and having them pay those expenses themselves. Not only will they have to learn how to budget with added expenses, but they also learn how to pay for things themselves.
If your tween or teen asks to borrow money you might want to help them out, depending on the purchase. This is a great time to teach them about bills and credit cards. Talk to your child about paying bills on time, writing checks, making regular monthly payments, as well as how credit cards work and how to use them responsibly. Even though you might want to bail them out if they’ve found themselves in over their head, practice tough love. It will be easier for your child to make mistakes and learn how to deal with debt now rather than later, when they might make mistakes on a larger purchase that they can’t afford – like a brand new car.
Even young children can learn the value of a dollar. Kids will spend unlimited amounts of money as long as it’s yours, but when their money is on the line, their attitudes and thoughts about money shift. It’s important to teach your children how to be self-sufficient early on – both for their benefit and for yours.
Guidepost Financial Planning would love to talk with you about financial planning for your entire family. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.