Why kids of all ages can learn smart money management.
By the time your child is old enough to earn money as allowance, he or she is likely also old enough to learn basic financial skills—how to save money, when (and when not) to spend it, what charitable giving looks like, and how much things cost.
Typically, between the ages of 5 and 10, your child has had a taste of the benefits that having money can provide, and many will be looking forward to getting more of it.
But how do you establish good habits in children this young—habits that hopefully will carry on long into their future? We’ve compiled a few tips on how to establish good financial habits early on.
What is Money Worth?
This is one of the most foundational lessons for children, and one that if untaught, can be the reason for heartache later on. Primarily, the lesson of “What is Money Worth” is easily tied to buying things—that toy is “worth” $10, perhaps—but what else will that same amount of money buy? In other words, that toy might also be worth three ice creams at school, five downloads from iTunes or a video game rental from Redbox.
One of the best ways to answer this question is to teach them how to budget. Although it may seem overkill for younger children, budgeting is a tool that can be adapted to a child of any age. For example, if you know your child gets $2 a week in allowance, you can show them how much they will earn over time. Likewise, add any big things they have coming up—a field trip in two weeks, or a new movie that comes out in a month—and show them what funds would need to be allocated there, as well. As the child gets older and the funds get bigger, they will still maintain a grasp on how money can be used and saved, which will be vital as they grow into more financial responsibility.
Keeping Money Safe.
Unfortunately, we live in a day and age where money is not always safe, and fraud is rampant.
In younger ages, talking about safety can be as simple as discussing the location of their piggy bank in the room, but for high school students, it could be a reminder to put their wallet in their locker when they go out to track practice. As they grow older, you’ll want to have discussions with them about full financial security.
How to Give.
When teaching children how to save and spend money, there is also one part that many like to include: charitable giving. Many parents choose to employ the use of a “split” piggy bank; one that allows a child to divide money into three accounts—spending, saving and giving. This is a great opportunity to teach your children not only about giving, but to discover their personal passions and interests by seeing which charities they want to support. By processing this now, they’ll have a stronger foundation later on in life, where charitable giving might include larger, more frequent donations.