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.
- Jun 10, 2019 The Biggest Question You Might Ask About Social Security Benefits: To Wait or Not to Wait? Jun 10, 2019
- May 20, 2019 2 Critical Ways to Hold Yourself Accountable to Better Financial Decisions May 20, 2019
- Apr 29, 2019 The Psychology of Money, Part III: Pay Now But Consume Later and Invest in Others Apr 29, 2019
- Apr 1, 2019 The Psychology of Money, Part II: Make it a Treat & Buy Time Apr 1, 2019
- Mar 4, 2019 The Problem with Federal Spending - and How It Impacts You Mar 4, 2019
- Feb 11, 2019 The Best Way to Handle Stock Market Ups and Downs: Get Used to Them Feb 11, 2019
- Jan 14, 2019 2 Important Tips on How to Manage the Household Finances as a Couple Jan 14, 2019
- Dec 3, 2018 Can Money Buy Happiness? Dec 3, 2018
- November 2018
- Oct 31, 2018 Lake Road Advisors Announces New Partnership with Vestwell Oct 31, 2018
- Oct 22, 2018 6 Biases That Can Impact Your Financial Behavior Oct 22, 2018
- Oct 8, 2018 Open Enrollment is Coming: Are You Adequately Covered? Oct 8, 2018
- Sep 24, 2018 What Today’s Economy Means For Investors Sep 24, 2018
- Sep 10, 2018 Recent Grad That Can’t Find a Job? Here’s What to Do Sep 10, 2018
- Aug 20, 2018 How Your Financial Planner’s Network Can Help Aug 20, 2018
- Aug 6, 2018 These 2 Accounts Offer the Best Tax Advantage and Here’s Why Aug 6, 2018
- Jul 23, 2018 The Big Difference Between a Fee-Only & Fee-Based Financial Advisor Jul 23, 2018
- Jul 9, 2018 Why Titles Mean Little and Designations Mean Everything Jul 9, 2018
- June 2018
- May 21, 2018 The 5 Most Common Estate Planning Mistakes Parents Make May 21, 2018
- May 7, 2018 Here’s Why You Need to Think About the ROI of Education May 7, 2018
- April 2018
- Mar 26, 2018 Get Beyond The Price Mar 26, 2018
- Mar 12, 2018 Index Funds and Passive Fund Management: Understanding the Opportunity Mar 12, 2018
- February 2018
- January 2018
- Dec 11, 2017 The Psychology of Saving Money: Why some do it successfully and others struggle Dec 11, 2017
- Nov 27, 2017 Why Your Child's 529 Plan Should Be Direct Nov 27, 2017
- Nov 13, 2017 Get on the Road to Financial Success with These 4 Behaviors Nov 13, 2017
- Oct 30, 2017 Know the Lingo - the daily market recap and how it affects you Oct 30, 2017
- Oct 16, 2017 The 3 Unbreakable Rules for Financial Success Oct 16, 2017
- Oct 2, 2017 Follow These Steps When Selecting a Financial Advisor Oct 2, 2017
- Sep 18, 2017 Why You Should Choose a Fiduciary as a Financial Advisor Sep 18, 2017
- August 2017
- Jul 24, 2017 How Am I Doing? Jul 24, 2017
- Jul 10, 2017 Do I Pay Off (Student Loan) Debt or Do I Invest Instead? Jul 10, 2017
- June 2017
- May 29, 2017 Diversification: The Right Way to Manage Risk May 29, 2017
- May 15, 2017 Having A Tough Conversation & Helping Your Aging Parents May 15, 2017
- May 1, 2017 What Everyone Should Be Doing Post-Tax Season May 1, 2017
- Apr 17, 2017 Want to Raise Financially Savvy Kids? Try These 5 Steps Apr 17, 2017
- Apr 3, 2017 Inflation: What Every Investor Needs to Know in 2017 Apr 3, 2017
- March 2017
- February 2017
- January 2017
- Dec 26, 2016 5 Steps to Get Your Finances Ready for 2017 Dec 26, 2016
- Dec 12, 2016 How Much Should I Invest In My Company Retirement Plan? Dec 12, 2016
- Nov 28, 2016 How About What Not To Do With 401(K) Contributions Nov 28, 2016
- Nov 14, 2016 Keeping it All Together: How to Balance Personal Financial Goals with Running Your Business Nov 14, 2016
- Nov 1, 2016 Nervous About The Election And Your Investments? Nov 1, 2016
- Oct 16, 2016 30-Somethings: Why are You Wasting Time Following the Stock Market? Oct 16, 2016
- Oct 3, 2016 Will 30 Year Old's Ever Get To "Retire"? Oct 3, 2016
- September 2016
- Aug 8, 2016 Why Budgeting Doesn't Need to Be a Dirty Word Aug 8, 2016
- Jul 18, 2016 What Does a Financial Planner Do? Jul 18, 2016
- June 2016
- May 16, 2016 It's Urgent, But Is It Really Important? May 16, 2016
- April 2016
- March 2016
- February 2016
- January 2016