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4 Ways to Teach Your Kids About Money Thumbnail

4 Ways to Teach Your Kids About Money

In case you missed it:

See our article from last week, 5 Techniques to Overcome Financial Stress.

When you think about your money habits, you can probably trace some of them to your parents’ lessons you learned, either intentionally or not. No matter how you deal with your money, your kids will observe your behavior and learn their own lessons. 

If you haven’t started laying the foundation for healthy money habits with your children yet, now’s the perfect time to start. Here are a few fun and stress-free ways to get every family member involved with finances.

1: Encourage Kids to Experiment

Making mistakes is one of the most effective ways to learn. When it comes to money, you have the power to create a safe environment for your kids to experiment, make mistakes, and grow their understanding  (without costing their financial future).

Give your children a small allowance each week as a tool to teach them the power of saving versus spending. Encourage them to create a budget and make goals. Soon enough, they’ll learn the value of saving their allowance for a big purchase later instead of spending it impulsively as soon as they get it. Ken gave his daughter her first allowance in dimes to make it easier to put 10% into each of three different banks she called Charity, Spend Soon, and Save For a Long Time. Now that she’s older, she still sets aside money for others and knows how to save for future big-ticket items and her retirement.

Stay involved with how your kids are spending and saving. Help them talk through their frustrations, answer their questions, and provide guidance when needed.

As your children grow, you may want to increase their allowance to cover the cost of some things you would have purchased for them. (Be sure that you give them the money instead of buying it yourself, not in addition.) Britta credits the clothing allowance she had as a teenager with much of her frugality.

2: Talk About Your Money

You may not want to divulge exactly how much is in your retirement account or how much debt you have, but consider talking to them about how much you plan to spend on entertainment or groceries and ask what they think. This can be an eye-opening experience for your children, and it’s something you can refer to throughout the month. When your child wants to go out to eat every night, remind them that you can only spend a certain amount on entertainment and dining.

We don’t typically recommend a full budget to our clients, but demonstrating that the amount you can spend on entertainment is finite can help your child develop decision-making skills that will benefit them all their lives.

Remember, this shouldn’t be stressful for your child. Instead of sharing your whole household budget, start with a few easy categories like entertainment, dining out, and groceries. You can even make it a challenge to have your kids find creative ways to do things within the family budget.

3: Give Them an Incentive

Try turning saving money and spending planning into a game. Give your shopping list to your children and let them search for coupons and sales. Offer a reward for whoever finds the most savings, or you can put some of the money that’s saved into their piggy bank.

Show your older kids the power of compounding as a way to encourage them to put some of the money from a summer or part-time job (see below) into a Roth IRA. Or help them see the importance of tax planning by showing them how their taxes will go up as their earnings increase.

4: Emphasize the Importance of Earning

Knowing how to save, invest and spend money is important. To make the lesson hit home, consider having your kids earn a little money of their own. Losing money handed to them doesn’t make as big an impact as losing money they earned. If they’re old enough to work, consider encouraging them to find a part-time summer job or seasonal gig. If they’re younger, find chores for them to do around your house (above and beyond those typically assigned to them) or for other family members, and pay them per task. The willingness to work hard and be rewarded is one of the best financial lessons you can pass on to your young ones.

Finding small, stress-free ways to instill financial life lessons now can pay off later in life. If you’re having trouble finding the right way to talk to your kids about money, ask your financial advisor for assistance. They can help you start the conversation and build the foundation of positive money habits your kids will benefit from for life.

Worried that you might not be the best financial role model? Set up a call today to discuss setting yourself up for success.

This content is developed from sources believed to be providing accurate information and is provided at least in part by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Original content of Practical Financial Planning, Inc. only is copyright © 2021by Practical Financial Planning, Inc.