In our previous article, we reviewed five tips that parents could teach kids on being ethically responsible with money. This week, we’ll continue our financial education discussion with how we can teach kids about budgeting and saving from an early age.
How many of us wish we were taught more about money during our childhood? One of the best ways to help our kids avoid financial mistakes in the future is to teach them to manage money.
According to an EverFi, Inc recentsurvey, “More than a quarter of students believe they will be unprepared to manage their finances upon high school graduation. In addition, students surveyed demonstrated that they do not understand basic financial facts and concepts.” Teaching kids basic financial tasks like developing and sticking to a budget will result in strong habits that they can carry into the future. So, now the question is, what financial skills do you teach them? Well, it really depends on how old they are.
Implement savings jars: Remember Spend, Save, Donate and Invest, that we reviewed in our previous article? Using basic math skills, kids will be able to calculate the amount in each jar and watch their money grow. Being able to watch their money grow in jars helps kids to understand the idea of saving money.
Purchase items: When it’s time for them to purchase an item or a toy that they’ve been saving for, let them count the money from their Spend jar, take it to the store and hand it to the cashier. This will help them to understand the value of money and that sometimes you must wait to buy something you really want.
Earn money: Establish a list of chores that your tween can do to help around the house in exchange for an allowance. Tying their allowance to chores helps the child to understand that money is earned not just given. If they want to earn more money, discuss with them how they can work for neighbors, help with the family business or set up a neighborhood lemonade stand. Learning that earning money requires work teaches tweens to be fiscally responsible and develops entrepreneurship skills.
Implement a budget: Set a budget for an occasion or event. Provide your tween with a budget for an event they want to host (for instance a birthday party or a sleepover) rather than purchasing individual items. Force them to stick to the budget and make decisions about how the budget would be best spent. Would it be better to order take-out food or make their own pizzas at home? Do they want party decorations, etc.? Budgeting helps kids to understand the value of money along with the idea of want versus need.
Open a bank account: Let your teenager open a bank account for their money. Educate them about how balances are updated with deposits and spending. Include a debit card that requires them to track their account balance and spending. If they overspend, let them pay the overdraft fees to learn the consequences of inattention to their account. If they pay high withdrawal fees, explain how they can avoid these by understanding the terms of debit card use. This is especially important for when they head off to college and are inundated with credit card offers. Understanding how to save and how to avoid unnecessary debts is an important lifelong lesson.
Visit a financial advisor: It’s not too soon to bring your teen with you to visit your financial advisor. Your advisor can help explain more complex concepts, such as saving for college, investing and planning for retirement. These meetings can spawn deeper conversations between you and your child after and further develop their financial skills.
Helping your kids to understand how to manage their money and good budgeting habits will help them as they enter adulthood later in life. Start with basic lessons, add new lessons as they mature and be mindful of teachable moments.
Have additional questions regarding your child and budgets? Your financial advisor can help you determine the right budgeting, saving and investing plan for you and your child.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.