Setting your child up for lifelong financial wisdom and success should be a priority for every parent. While there are plenty of other life lessons to teach, learning how to handle money will be by far one of the most important. Being able to be fulfilled with what they can afford and sticking to a budget while saving for things like education, travel, and retirement will see them comfortably through their life.
Create the Opportunity to Earn Money
Regular chores benefit kids in a couple of different ways. First, by chipping in around the house they are emulating their parents and learning what is involved in keeping a house clean and running smoothly. Second, doing chores gives them the opportunity to earn money.
Depending on the age of the child (most parents start around 5 or 6) you can give them a weekly allowance that correlates with the chores they’ve successfully completed. Keep in mind that chores should be age dependent – you wouldn’t have your 5 year old mowing the lawn! Feel free to have them “help” mom, dad or older sibling with another chore to help them get the hang of how to do it (like setting the table).
Instilling the Idea of Healthy Savings
Once your child starts earning money via chores and other sources (birthday, holiday gifts, etc.) you will want to show them how to save it. You might choose to pay them via cash, this way they can distribute their money three different ways – one jar for savings, another jar for spending and yet another for a charity of their choice.
If they are interested in making a bigger purchase, one they have to save up for, talk to them about splitting their allowance between cash and a gift card. This way, they can save their gift cards (and are less likely to impulsively spend them) until they have enough to buy their big purchase. The gift card strategy will help teach patience and savor anticipation. It’s also a good opportunity for you to add chores onto their existing list so they can earn extra money.
Establishing a Budget
When kids become teenagers, they start accruing their own responsibilities. Cars, gas, cell phones, car insurance, etc. all start becoming a reality. This is the perfect time to help them establish a budget. Whether they are saving for a future expenditure or not, creating a budget keeps their spending in check and shows them how much spending money they have to play with week to week.
When kids get even older, they will be able to expand this knowledge into their adult budget, where they’ll track expenses such as utility bills, groceries, child care, etc.
A Conversation about Credit Score
Just like their grades at school, introduce them to the idea that their credit score will have an enormous impact on their buying and spending power in their future. A combination of savings and the right amount of spending on secured credit cards will get them started toward a bright future.
There are plenty of platforms that track credit scores for free. Credit Karma and Credit Sesame are just a couple that won’t affect their credit score. Teach them that every once in a while, their credit score will adjust and they should know the exact reason why. Often times, they will be able to “fix” the issue so they aren’t careened off of the credit score track too badly.
Teach Disciplined & Discerning Shopping
Buying things is a part of life, there are wants and needs but overall there’s no way to avoid spending money on certain things. Teach your child how to shop around for the best price, how to steer clear of scams (what seems too good to be true, probably is!) and avoiding impulse buying.
Shopping Around: Starting off at an early age, browse the online marketplaces and brick and mortar store flyers for the best price on the item they desire. Show your kids that the same item can be purchased for more or less at various stores and sometimes it pays to wait for sales.
Steer Clear of Scams: As they get older, they will be inundated with scammers who send them false emails, texts, etc. Help them scrutinize what’s in their inbox so they can determine what is too good to be true.
Avoid Impulse Buying: Introduce the 48 hour rule. When they see a “must have” item at a store or online, help them see that it will still be there in 2 days and if they are still as enthusiastic about buying it, then they can. Impulse buying will flood their budget boat until it sinks, so being self-disciplined is a skill that needs to be honed.