You might have mastered the art of managing your money, but just because your education is finished doesn’t mean you can’t pass on this knowledge to the next generation: your kids.
Teaching your kids excellent money habits will make them more confident once they become old enough to earn a wage. Too often, parents neglect to give their kids a crash course in saving, budgeting, and spending money. When they finally get their own money, they end up irresponsible, splurging money on video games, clothes, and candy. While they are allowed to indulge now and again, this could be the start of bad habits which are hard to break.
Clear Savings Jar
It’s always best to start early, and if you’ve got younger children learning about money for the first time, you will be able to teach them about money management by giving them a physical representation of the cash. A clear savings jar is the best way to do this.
With a jar, they can see how much or how little money is available. It will teach them the consequences of spending, and that there is no such thing as an evergreen money tree. Savings jars are a better alternative than piggy banks, as kids will get to see the changes in real-time, rather than fill up the piggy bank and wait for the surprise.
Be An Example to Them
Even though you’ve got plenty of money lying around, tucked behind sofa cushions, or protected in your bank account, you can’t buy on every whim. Children will model your behavior in all aspects of life, and just like they will copy your diet and actions, they will also want to mimic your spending habits.
If you spend your money frivolously, they will think this is normal. It isn’t normal, though, even if you’re a millionaire. It’s vital to demonstrate your restraint when teaching your kids how to manage their money, as you will be the first person they learn from.
Demonstrate Opportunity Cost
What does the opportunity cost? It is merely a way of comparing the effects of purchasing certain things. This is a useful method to do with kids who are old enough to understand what money is, but not old enough to earn their own money from a part-time job.
When faced with opportunity cost, you can remind them that if they buy x, they will not be able to afford y. This tactic can encourage them to be more careful about their spending and consider whether or not this is the right purchase to make right now. By understanding outcomes, they should become more sensible with their spending.
Commissions vs. Allowance
You shouldn’t give kids money just because you think you should. Consider the benefits of an allowance versus a commission. With an allowance, you will give your kids money every week even if the dishes pile up, they don’t take the dog for a walk, and their grades are at rock bottom.
Compare this to a commission that rewards kids for chores and hard work. They won’t have money for free in the future, so a commission instills a positive work ethic. When they are paid for their work, they will understand how vital contribution is if they want to earn a living.
Advise Against Impulse
Impulse buys are the energy of proper budgeting. Kids will see something they want, and they will buy it straight away. It might be a new video game to play with friends, or it could be a dress for them to wear to the school dance to impress their friends and their crush.
However, it’s vital to advise against impulses at all opportunities. Even if you understand their need for it, encourage them to wait at least 24 hours (although, preferably a week) to make the purchase. If they still care enough to buy it once this time has passed, then it’s clearly not an impulse.
Give Them a Bank Account
When your kids are old enough, you can help them set up a bank account. You can usually open an account as young as 13, and whether they get paid with an allowance or a paper route, they can deposit this money into their account and watch it grow.
Compare this to the clear savings jar you used when they were little nippers. While they won’t see the money increase, they will see numbers tick up and up with every deposit. This will help teach them more mature money management, which should prepare them for dealing with more substantial sums later on.
Help Them Budget
Nobody knows how to budget naturally; it is something that you must learn. You learned how to do it, and now you can pass on this wisdom to your kids.
Teenagers don’t pay for much. However, once they get to an age where they need to be responsible for themselves, such as paying for a phone contract or their car, they need to know where the money is going and how much they can afford to spend. Sit down with them and set up a budgeting plan so they can visualize where each payment goes.
Show Them Different Options
As your kids get older, you will want to help them get into the most comfortable financial position possible without padding their bank accounts yourself. After teaching them all about budgeting, you can consider looking into other options to help them build their bank balance.
One of these options is investing. While they might think they aren’t old enough to consider investing, there are lots of different platform types for them to explore, while micro-investing is also a low-risk avenue to consider.
Smart Money For Smart Kids
Your kid is unlikely to listen to your endless lectures on managing their money correctly, but the more you persevere, the more appreciative they will become. By catching them early and drilling excellent habits into their heads (not literally, of course), you can prepare them for the rest of their lives, be more sensible and careful with their spending, and reap the benefits by doing so.
