We may not even realize it, but most of our attitudes, fears and habits around money are formed when we are kids. How much our families made, how much they spent and even how much of an allowance we got, greatly influence how we feel and react to the lack of or the abundance of the greenback.
Kids learn the basics in school — reading, writing and arithmetic. But schools avoid almost any instruction about money. If they do offer a class, it may be an elective in high school, long after money habits have been formed.
I believe it’s important to start talking about finances early, when kids are young. You can begin to share your values and help kids shape their views on money in a culture that places a premium on “things,” not savings.
While we can’t shelter our children, we can teach them. It’s why I am sharing a guide of practical tips that I believe will help put your kids on the right path.
1. Teaching delayed gratification. This is the hard part. Some of us are better than others, but few have truly mastered the art of patience. After all, we are human!
Look at it another way for kids. Anticipation can be half the fun! It’s the journey. Think about it: your kids awaiting the arrival of Santa, or the excitement that precedes going to an amusement park or on an upcoming family trip.
If they want to buy a pricey item, help them save for it. You can lend support by setting up various methods for savings. I remember the piggy bank. Money goes in, but never really comes out. Instead, consider setting up three jars: One for savings, one for giving, and one for spending.
2. Incorporate giving it away. I believe the giving jar is as important, if not more important, than the savings jar.
Do your children have a cause that resonates in their heart? Do they want to give to their church? Is there a local food bank or animal shelter your daughter or son can assist with donations?
Learning to let go and help those who are in need will create a stronger sense of altruism and selflessness that, if taught early, will blossom in them as adults.
When it comes to charity, let their treasure follow their heart.
3. Kids need money. Theory without practice won’t work. Kids need a hands-on lesson. You may start with an allowance (some refer to it as a commission)—you may pay kids for various chores, or both. That’s a parenting preference, and there are advantages to both.
What is an appropriate allowance? According to a study by RoosterMoney published by The Balance, the weekly allowance earned by a 4-year-old averages $3.76. At 8 years of age, an allowance averages $7.27 per week. At 12, the allowance is $9.85 and $12.26 at 14.
The study offers reasonable guidelines, but you may adjust at your discretion.
What about birthday gifts, Christmas gifts, etc.? Set goals with your children, but I lean heavily toward the savings bucket. Those annual gifts will add up over the years. Your kids could graduate high school with a tidy sum of cash if they have the discipline to save.
4. Teach by example. I remember a time I paid for my purchase at the gasoline pump, got back into my car, and drove away.
My young daughter accused me of stealing!
She understood the idea that “what’s not ours isn’t ours,” but she didn’t grasp the concept of “plastic money.”
I explained how I paid without going into the store, discussed the concept of a credit card, and emphasized these purchases are always paid in full at the end of each month. Today, I still impart the benefits and dangers of credit cards.
Was this a lifetime lesson for her? I certainly remember helping my parents pay their credit card balances off in full each month.
In addition, consider using lists when shopping. Your children will see that it helps avoid impulse buys. And, as kids grow older and the discussions are age appropriate, explain why you try to avoid impulse purchases. Oh and it goes without saying: never shop for groceries/food when you’re hungry.
Use various examples from your own life when you teach your kids about the importance of money and savings.
5. Encourage summer and after-school jobs. Trading time for cash via a job helps kids learn the invaluable lesson of hard work. It also supplements savings and provides spending money.
Cutting your own or the neighbor’s grass, shoveling your own snow or the neighbor’s snow, yard work, a lemonade stand, babysitting, helping in the family business, working retail, household chores, or working as a lifeguard are options.
Besides the extra cash, they will learn a strong sense of pride and responsibility that will carry over into adulthood.
6. Open a savings account. Not that long ago, a savings account earned a respectable interest rate. That’s not the case today. Still, a savings account helps kids learn.
A 5-year-old may not need a savings account, but adulthood isn’t far away for a teen or pre-teen. As young adults they will have a checking account, debit card, and eventually a credit card. Baby steps in the right direction will ease the transition.
As they grow older, discuss the benefits of investing with your kids. Outside of a college savings account, you may open an investment account or Roth IRA in their name and teach them about investing. You could start it with seed money and have them contribute on a regular basis (they need earned income to contribute to a Roth IRA). More importantly, help them buy into a savings goal. That way, they will take ownership.
If you’re unsure about how to start the process, we’d be happy to point you in the right direction.
7. There’s an app for that. Today, there are mobile apps that can help kids. Bankaroo, iAllowance, and PiggyBot are just a few. Feel free to look online for one you feel is most appropriate for your child.
8. Guide them with goal setting. Are they trying to save for something? Help them come up with a plan and incentivize with matching funds. Companies do this with 401(k)’s, why can’t parents?
Discuss the importance of needs versus wants. A teenager may need a bicycle. But do they need one with all the bells and whistles? Or, are there reasonably priced bikes that won’t bust the savings account?
9. Money isn’t everything. Yes, it’s important. It gives us choices. But by itself, money can’t buy happiness.
10. Let them make mistakes. Ashley LeBaron, a graduate student at the University of Arizona, said, “Let them make mistakes so you can help them learn from them, and help them develop habits before they’re on their own, when the consequences are a lot bigger and they’re dealing with larger amounts of money.”
Not surprisingly, her research showed those who had practical experience with money during childhood learned how to work hard, how to better manage money, and how to spend it wisely.
That may be the most important desired outcome.
If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.