It’s strange but personal finance is not often taught in school which means we, as parents, need to teach our kids how to handle money when they get out of school and into the real world. Let’s be honest, many of us are still trying to figure this out ourselves, so teaching our kids these things can be difficult. I have a few tips to help make it easier for you to teach your kids the importance of financial responsibility.
Take Your Child Grocery Shopping
Kids don’t often understand how money gets spent on the household. Paying bills can be a somewhat abstract concept because water just comes from the faucet and the lights turn on from the light switch. You can help your kids understand budgets for the household by taking them grocery shopping with you and letting them calculate how much things cost as they put them in the cart.
If you’re shopping for food for school lunches, give your child a budget and let them pick what they want. They will quickly see how much more expensive it is to eat food that’s not good for them as opposed to making healthy choices.
When it comes to paying for your groceries, help them add up the items and get them involved as you make the payment. This is also a good way to teach them about that extra fee, sales tax!
Pay for Chores
Kids won’t learn how to save, spend, or budget their money if they don’t have any to practice with. You should consider giving your kids an allowance for chores so they can earn money. By doing this, your kids will have a greater appreciation for the money as well as develop an understanding of hard work.
One way to determine how much to pay for chores is to index it to their age. You can use dimes, quarters, or even dollars for a weekly amount times their age. Alternately, you can pay them per chore such as a certain amount for every load of laundry that they do. In addition to helping kids understand budgeting, earning money helps them see the bigger picture of saving versus spending.
Provide Savings Incentives
When kids have money such as birthday money, it can burn a hole in their pocket. Don’t let this happen with chore money. Provide incentives for saving by offering to match savings after a certain date or providing interest after a set amount of time passes.
I offered to double the money that my kids put in their savings account, but they are not allowed to withdraw the money until they have graduated from high school. When your kids enter the real world and get jobs with benefits such as a 401k retirement match, they will have already experienced how to save for the long-term.
Don’t Give Extra Money
Part of teaching to save is teaching how to do it. Help your kids understand the consequences of their actions by not providing them extra money. Help them make wise purchases and use their money responsibly by reminding them when they want to spend impulsively about their long-term spending goals. “Are you sure you want that today? Remember, last time you didn’t have enough money for something you wanted more.”
Let Them Help With the Budget
Just like helping with grocery shopping, budgeting attaches real-world applications to spending money. Your kids will see where the money goes each month and understand how to budget money to pay bills, save money, and have some money for discretionary spending. The sooner they understand how to budget, the more prepared they’ll be when they’re on their own in college or beyond.
For too many young adults, paying rent and all the accompanying bills are a shock once they’ve moved out of your home. Help them learn what to expect and how to spend their money so that when they are on their own, they have learned how to be self-sufficient.
Teach Them to Be Content
Kids always want things. Whether it’s a new video game, bike, or doll, there’s always something. Most of us don’t have it in the budget to buy these things for our kids every month. Most of these items will need to wait for birthdays and holidays. And that’s ok! Teach them that it’s fine to have a wishlist for birthday or holiday gifts, but also to be content with what they have.
Give Them Something to Save For
One of the most valuable gifts you can give your children is how to set and reach long-term goals. Help kids understand that the things they want now will still be there in a few months. Teach your kids how to make a savings plan to reach their goals. This instills financial self-discipline and will apply to much bigger things in the future like a down payment on a house.
Teach Them About Interest Rates
Interest rates are an important part of financial literacy. From compound interest to interest rates on reverse mortgages, an early understanding of interest will help your kids make wise decisions with saving and investing. They’ll benefit from this knowledge for the rest of their lives whether it’s buying a house, saving for retirement, or even seeking counseling before retirement. It’s a gift that keeps on giving.
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