It’s easy, even for well-meaning adults, to get caught up in the latest technology trends, the coolest gadgets or even the biggest and “baddest” toys. Is it any wonder that so many children don’t ever learn the foundations of healthy money habits? Without positive habits, it’s excruciatingly difficult, if not nearly impossible, to work steadily toward goals such as periodic vacations, home buying, and a secure retirement fund.
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Start Them Off Young
When small children are learning their ABC’s, start teaching them the 1-2-3’s of coins, cash, and counting. Ideally, this might start at age 6 or 7, when they no longer put small objects into their mouths. Placing the cash and coins in front of them won’t do much good until you also attach it to showing them the process of purchasing. Let them go to the store with you and have them help you buy a gallon of milk or some other single item. This action allows them to see the direct correlation between item worth and funding for a purchase.
Saving is Even More Important than Buying
While, eventually they will see that certain purchases can simply not be avoided such as groceries, fuel, and the rent or mortgage, it’s equally as important to teach kids that saving money will propel them closer to getting the things they want. In addition to saving for bigger ticket items, saving money teaches children delayed gratification, discipline, and that money saved equals the opportunity for greater choices.
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Since kids at this age don’t have the foresight to see further than their next birthday or even next week, start off with smaller goals such as saving for a toy. Begin with this goal as opposed to saving for, say, college, which for younger children will make little sense and therefore have little meaning.
Make it Personal
It’s easy to spend money that you didn’t work for and much more of a thoughtful process deciding what to spend money on that you earned. Children will have the opportunity to learn this nugget of wisdom only if they’re given the chance to make money on their own. Encouraging them to engage in work/reward activities offers a lifetime of strong financial skills and decision-making. Why not begin with:
- Chores – Create age-appropriate chores for your children to complete on a daily and weekly basis. Pay them for their successfully completed tasks at the end of the week, just like adults.
- Allowance – Some families choose to give an allowance in addition to opportunities to work for money via chores.
- Payment – Encourage children to save by paying them with Visa Gift Cards, which can be personalized with a special photo and / or text with words of encouragement.
Teach Them a Budget
Living within one’s means is one of the most valuable and important lessons anyone can learn in life. In an age of overindulgence and excess, it’s easy to see how some people, with credit cards in hand, can overspend on items that aren’t necessary. This type of money management ultimately harms their future purchasing power and ability to improve their lifestyle and achieve the financial security for monumental life experiences and unexpected emergencies.
Of course, children aren’t generally strapped with bills like car insurance or cell phones, so it takes getting creative to weave budgetary responsibilities into a ten-year old’s world. Their list of chores is their first set of obligations. It’s wise to let them know that if one or more of those chores are not completed thoroughly or on time, it may come out of their allowance. This will help introduce them to the idea of being held responsible for their actions, and earning money for their own time and efforts.
Investments for Future Growth
The idea that money itself can earn more money may not be an easy thought to convey. Once kids are in their early teens, share a bit of wisdom regarding the investments you’ve made for you and the family, and the options that are available to them as minors. Generally, you’ll need to open custodial investment accounts for them until they reach the age of 18. Some investment ideas include:
- Starting a small business
- Opening a Roth IRA
- Buying a stock
- Opening a High Yield Savings Account
- Investing in a low-cost mutual fund
- Studying an Investment Returns calculator
Be a Positive Financial Role Model
Just like with everything else children see you do, relationships, career choices, conflict resolution and striving for personal goals, they will also emulate your financial responsibility and behavior. Make smart buying choices such as: investing for your own future, rewarding yourself appropriately, and getting creative by thinking outside the box with income stream revenues.
Children are like sponges. What they see and what you show them will be directly absorbed into their belief system and personality. Make wise decisions with money from the very start, before bad habits have an opportunity to form, and your children will thank you for a lifetime.