Between shopping for presents and buying for parties, now is the time of year for spending money. It could also be the time to look at how your spending habits are affecting your children’s habits. Our financial guru, Julie Cole, has some tips on how to teach kids about spending and saving.
- Share information about the family finances. Your child doesn’t
need to know your annual salary, the amount of the monthly
mortgage payment or the amount in investments and savings, but
they do need to know where the family stands financially. They need
to know how money decisions are made and how parents save for the
things they need and want. If money is tight, they need to know that
there is no money for extras.
- One of the best tools parents have for teaching financial responsibility
is an allowance. Allowance isn’t money a child earns for
doing chores. Children should have age-appropriate chores that
they do, without pay, simply because they are members of the family.
The amount of the allowance should be age appropriate. Allowance
money can be used for gifts for family members and friends and other
needs. This is a good way to teach kids to give to charity, save for college,
or other long-term goals.
Allowances should be paid with small bills. If the monthly allowance
is $10, they should receive ten $1 bills so that they can allocate
appropriately to short-term and long-term goals.
- Show your children how to plan for purchases by always making
a shopping list and purchasing only those things on the list. Use
regular shopping trips as an opportunity to teach children about
good shopping choices. It is estimated that impulse buying results in
wasting 20% of our money. Your unplanned purchases will influence
your child’s future spending habits.
- Teach kids about borrowing money when they are young. Let’s
say your daughter wants to buy dad a Father’s day gift that costs
$20, but she only has $15 saved. Advancing $5 from the next
allowance may be a good idea if you make it clear that this will be a
one-time event. If you advance money frequently, then they won’t learn
about credit and budgeting.
- Take your child to a bank or credit union to open their own savings
account. Beginning a regular savings habit early is one of
the keys to financial success. Don’t refuse to let them withdraw
when they want to make a purchase. This may discourage them from
saving at all.
- Have your children set goals by making lists of needs and wants
or necessities versus luxuries. Review the lists with them to help
reassign items from necessity to luxury. Explain that no matter
how important a video game is to them, it’s not a necessity, but may be
a realistic goal that they can attain through saving.
- Allow your children to make spending decisions. Whether good
or poor, they will learn from their spending choices. Encourage
them to do research and open a discussion with them regarding
the pros and cons of their spending choices.