In my previous post, Educating Your Kids About Finances, I talk about the basics of preparing your child with financial knowledge. However, teaching your kids basic money concepts on how to be responsible with money from an early age and actually helping them apply important money habits are two entirely different things.
There are plenty of “teachable moments” when it comes to finance. From holidays to diffusing a melt-down at the store when they can’t get something they want, there is opportunity everywhere you turn to raise a financially savvy kid.
Here are 5 actionable tips to start your child’s financial education early and strong:
1. Open up a Bank account
Helping your child open their first bank account is an exciting event for a child. It affords you as the parent an opportunity to initiate money conversations and help them learn how the banking system works, and perhaps more importantly – the power of saving.
As an example, my local credit union, Corning Credit Union, does a great job with the super savers program. Kids get stamps each time they make a deposit and after collecting five stamps they earn a prize. This simple exercise has incentivized them to save while also teaching them about delaying gratification (not every visit ends in a prize).
2. Give Them the Opportunity to Earn Money
Show your child the value of hard work and a dollar by rewarding them with an allowance when they complete the tasks you assign to them. Your kid’s financial education is certain to become much more personal once they earn their own money. Like with most good habits, you need to start somewhere, even if it’s just a dollar a week.
3. Hold Them Accountable
Hold your young child accountable to good money habits. You can do this by showing them how their behaviors impact their ability to earn and save money. For instance, if they do not complete their chores that earn them an allowance, then they do not receive their allowance. This teaches them that follow-through and work earns money. Another way you can hold them accountable is by helping them set money goals like saving so many dollars for that toy they really want. If they don’t save the money, then they don’t get the toy.
4. Make Them Prioritize Their Money
After your child earns his or her own money, it’s critical that you step in and show them how to make smart money decisions. You can create envelopes or folders labeled, “Tithe/Giving,” “Savings,” and “Spending.” Your money categories can be whatever you want them to be, but the point is to get your kids to establish smart money habits as early as possible. These are the types of habits that will benefit them their entire life.
As an example, I personally make my children put half of any birthday or holiday money into their savings account and allow them to spend the other half. A friend I know has his children save 1/3, donate 1/3, and spend 1/3. It is completely up to you how you want to teach them to prioritize.
5. Let Them Make Purchasing Decisions
Once they have put money towards the categories you determine to help them prioritize their cash, let them spend the rest as they want with some gentle guidance. As they spend their money, help them understand their purchasing power, but don’t tell them what they can and can’t do with it (this has personally been difficult as my kids continue to pour money into buying Shopkins). Ultimately, they need to make a few mistakes so they can learn the valuable lesson that if they waited a few more weeks they could have afforded to buy what they really wanted.
Continue engaging your children about money and they will slowly and surely have a much better grasp at how much things cost and how they want to spend their money.
What are some other money lessons you’ve taught your children over the years? What are some mistakes you have made? I would love to hear so please don’t hesitate to share.
