Learning to manage money is one of the most important skills a person can have. People that don’t know how to properly manage their finances can find themselves under a mountain of debt with no way to get out.
As kids reach the age of adulthood, we are seeing more and more young adults that have NO idea on how to handle money. They are racking up thousands of dollars in credit card debt that they can’t afford.
Some of this could be blamed on the public school system not teaching enough financial concepts to prepare them for the real world, but a lot of it can go back to parents for not teaching their children smart money habits.
Talk to them about Money
One of the best ways to teach your children about money is to talk about YOUR own finances. If you don’t ever talk about your money habits, how are your children going to learn them?
When you sit down to look through your checkbook at the end of the month, invite your kid over to watch what you do. Explain WHAT you’re doing and WHY you are doing it.
The more you talk to your children about money and your financial habits, the more questions they are going to ask. As you start sharing more complicated concepts, your child might start asking about the importance of car insurance or why you need a life insurance policy. These are concepts that a large majority of college students don’t understand.
Talking to your kids about money doesn’t have to be any formal lesson. There are dozens of teaching opportunities through a normal day to explain financial decisions and the importance of managing your money.
Why did you use the coupons? Why did you go with this brand instead of that one? Everyday can be an opportunity to teach good money habits to your children.
Set Up a Savings Account
One of the best ways to teach your child the importance of savings is to open a savings account for them. There are dozens of banks and credit unions that offer kids savings accounts, and they are a great teaching tool for parents. Obviously, as the parent, you will have full control of the account and the money in it.
Each bank has different advantages and disadvantages for children’s savings accounts. Most of them have no fees and make it easy for you to access. Take the time to research each bank and decide which institution is best for you and your kid. There are plenty of online savings accounts that you can open in a matter of minutes.
Depending on which type of account you open, your child can get his/her own debit card. While it seems ridiculous to give your child their own card, it’s an excellent way to teach them early on that using a debit card isn’t just spending imaginary money. At the end of every month show them the bank statement from their account.
Let them Work For It
Giving your kids chores does more than just help you keep the house clean, it’s one way to teach smart money habits. Assign your kids weekly chores and pay them for doing them (hopefully without being told). This will give your children a sense of accomplishment, but also show them the value of hard work.
The younger your kids are, the easier the chores should be. As your children get older, you can start teaching them the benefits of responsibility, and with that responsibility comes more cash. If you have additional tasks that you need to be done around the house, you can offer them the job and give them the ability to do it if they want to. Think of it as working overtime.
Aside from a chance to teach good money habits to children, having your young ones do chores around the house also has a few other advantages. According to a recent survey by Pollfish, children that did chores tended to be more responsible and disciplined versus kids that didn’t have to do any.
Budget Their Money
Sure, watching you budget your money is one thing, but letting them do it themselves is another. Learning to budget at a young age will save your children a LOT of financial trouble as they grow older. Because your kids aren’t earning a salary other than chores, teaching them to budget their limited money can be difficult, but it’s one way to teach good money habits.
One of the easiest ways to teach budgeting to your children is to use the jar system.
The jar system is exactly what it sounds like: set up three or four jars for your child, label them “saving”, “spending”, “gifts”, and “charity”. At the end of each week, sit down with your kids and divide up their earnings into the separate jars. Being able to see each jar and how much is in it gives them a more tangible idea of budgeting instead of just seeing numbers on a piece of paper.
While two of the jars seem obvious, “saving” and “spending”, a lot of parents are intrigued by the other two jars, “gifts” and “charity”. It’s important to teach your kids the importance of giving gifts to others and what it means. When birthdays and Christmas roll around, have your kids buy their own small gifts (you can help them out with the bigger gifts).
The last jar is the “charity” jar. It’s never too early to start encouraging your kids to give back to the community. This could be a “tithing” jar if your family is involved in religious activities. If not, you and your family can pick a charity or find a family in need each month to give back to. Let you children have a say on which charity you pick.
Save for Goals
Your kids are going to want things. They always want something new and shiny. Sure, you could always buy them the new toy or gadget. OR you can use these moments to teach good money habits.
The next time that they say they want a new toy or game, sit them down and show them how long it would take them to save enough money to buy it themselves. If they already have enough money saved, get the spending jar and take out the cost of the toy they want. Then they can see just how much it’s going to cost. This will show your children the value of a dollar and make them stop and think if the money is worth what they’re getting from it.
If your child is getting older, some of the saving goals are obvious, like a car. If they have a part-time job or start taking on a larger part of the housework, saving for a car is one of the best ways to teach your kids good money habits. Not only will they learn saving techniques, but they will see more value in their purchases because they bought it with their own money.
Teach Good Money Habits Today
Your kids learn just about everything from you.
How they talk, what they eat, their hobbies, and even their spending habits. It’s important to teach good money habits to kids early on. There are millions of college students and young adults that are finding themselves thrust into the real world without the tools and knowledge to get by without drowning in unpaid bills and overdrawn bank accounts.
Good money habits is a gift your children will thank you when they are older.