By Megan Kuchan, CPA
It’s important to teach your children valuable finance habits.
Set your children up for financial success by establishing healthy financial habits that will benefit them throughout their lives.
Healthy financial habits that last a lifetime must start at an early age. Whether you have a kindergartner or “tween,” here are a few tips you can take to teach money and finance fundamentals to your children.
Chores are your child’s first job
If your child understands the difference between a nickel and a dime, then they can start learning the value of currency. Distributing a weekly allowance for chores completed is a good way to reinforce this learning. You could start with a weekly allowance of a dollar for every year of age, but no matter the amount, they’ll have a chance to earn money and decide what to do with it. The key piece is that age-appropriate chores must be completed before the child receives the weekly allowance.
If they beg for an advance without finishing their chores, consider the message you could be sending if you agree. By providing “a loan” on an allowance, parents could unintentionally be reinforcing a harmful pattern of overspending and debt. Try this productive alternative instead: if your child is hoping for additional funds for a certain week or is saving for a particular item, then additional chores or tasks could be completed in order to increase the allowance. In short, they could work “overtime.”
Don’t spend it all in one place
Whether your child is earning an allowance from you or receiving monetary gifts from grandma, it’s important to instill a desire to save a portion of their money for a rainy day. And whether it’s a set percentage of the income or a customized amount spurred by a conversation between you and your child, it’s imperative you emphasize the difference between spending, saving, and sharing – and the importance of each. For younger children, you could divide their income into tangible envelopes or jars so they are able to watch each stash grow. Alternatively, there are apps and websites for older children to track their cash. Either way will inspire them to carefully consider how to use money.
Interested in interest?
To help drive home the importance of saving, you could introduce the topic of compounding interest and spark an awareness of the relationship between money and time. Use a calculator or create a spreadsheet to show just how quickly the saved funds can multiply. It can be used as a way to track the funds as time passes and help encourage that savings stay out of the spending bucket.
If your child is constantly begging for new and trendy clothes or toys, you may want to consider emphasizing that you are willing to pay for the economy version and he or she could pay the difference for an enhanced model. You may be pleasantly surprised when he or she suddenly decides to forgo the expensive item and then comparison shop to find a version cheaper than the one you offered in order to pocket the difference!
The family that invests together…
If you’re looking for summer activities to keep the kids busy, you could work with them on taking their savings experience a step further. The next time they express an interest in a consumer product, encourage them to do some additional research to determine if they would invest in the company that produces said product. By working with them to research, purchase and track publicly traded stock, you’ll be creating a whole new family activity and they will begin to understand the stock market and investment potential beyond bank accounts.
No matter which method you choose, it’s important to teach your children valuable finance habits. Setting a good example is only the start. Talk with your children and set them up for financial success by establishing healthy financial habits that will benefit them throughout their lives.
If you have any questions or need additional tips, contact Clark Nuber.
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