Teaching kids about money is easy with these tips
Have you ever noticed how some kids hoard their money, and others never have a dime? Why is it that one child will diligently save up for a toy that they want, while another will fritter away their allowance and wonder where it all went? Of course we all know adults like this as well - but how can you influence your child's money management habits early, helping them to become responsible money managers at an early age?
There are several different theories about money and kids. Some adults give their kids an allowance each week, and let them just spend it as they want. "They'll learn"¦" the parents say. The kids will learn - at least they'll learn to spend their money! But without guidance, they may never learn to spend it responsibly, and to balance short term with long term goals.
Other parents choose not to provide an allowance at all, deciding that they will provide the child's income and therefore have total control over what the child spends it on. While this does greatly reduce frivolous expenditures, it also fails to give the child any sense of ownership for their decisions. Furthermore, a young child may not understand a parent's decisions on what to spend - or not spend - money on.
"I want the blue ball, Mommy"¦" your child may whine.
"No, you have four balls at home already"¦." You say firmly.
"But I want the Bluuuuuueeeee one"¦." The child whines, creating a major scene in the store.
Of course the temptation is to buy the blue ball, just to stop the scene, which only further reinforces to the child that Mommy will buy them anything they want, and if resistance is encountered, whining always works! When you're a child and you're drawing from a seemingly bottomless money pit, it is hard to comprehend why one purchase is approved and another denied.
One effective way to teach children about money management is to give them a regular, consistent allowance. Children can plan ahead for their allowance, budgeting for bigger items that they want to save for, and choosing between smaller impulse buys based upon their funds available. Compare the situation above with this one.
"I want the blue ball, Mommy"¦." Your child may whine.
"Okay, did you bring your wallet?" you ask the child.
"Yes, I have it right here." The child replies, holding up their wallet.
"The ball is two dollars. How many dollars do you have?" you ask.
"I have eight dollars." Your child says, counting their money.
"Okay, you have enough dollars to buy the ball. But if you buy the ball, you won't have enough dollars to buy the airplane you're saving for. Do you want to buy the ball, or save for the airplane? You already have four balls at home"¦" You remind your child.
"How much is the airplane again?" He asks.
"The airplane is ten dollars. You'll have enough to buy it on Friday, if you don't buy this ball." You remind him.
"Um, I'll save for the airplane"¦" your child says, putting the ball back.
Think this sounds impossible? This very discussion was overheard in the grocery store with a four-year-old boy and his mother. Remember that it's important to be firm - if your child buys the ball, and then later wants to get the airplane, you will have to remind him that he made his decision"¦ reminding him that he'll get his next allowance on Friday (or whenever) and that then he'll have enough money left for the airplane.
Of course, as a parent, one of the best parts about this is that it takes the weight off of our shoulders. If you don't want to waste your money on yet another ball, you give the decision to the child. Of course there are times when it's nice to provide special toys and gifts for your children - but teaching your child to manage their own money will help you more easily say "No" to impulse purchases!
Some tips for teaching children about money include:
* Give your children a pre-set amount each week. For children three and under, $0.25 should be plenty. We gave our kids $1 a week starting at age four and added $1 per year thereafter, with their "raise" occurring on their birthdays.
* Try to pay your children in dollar bills, when possible. This allows them to easily count up their money, especially when they're young. It also makes setting some of their money aside for savings easier!
* Try to set aside at least 1/3 of their money in a separate piggy bank for long term savings. You'll both be amazed at how fast this adds up! This helps teach them about savings.
* Gifts from grandparents, etc. in the form of cash should be treated as allowance as well, with at least 1/3 put into savings. If you start this early, they'll never challenge it (at least not for many years!)
* Have your child carry their wallet with them when you go on outings to the store, etc. For very young children you might want to carry it in your purse, so it is always available and they don't lose it.
* Let your child actually pay the cashier for the item. The mental impact of actually handing over their hard-earned dollars for an item is far more powerful than if you take their money, or if they pay you back later.
* Don't extend credit to your kids, except in extreme situations. If you are on a vacation and your child desperately wants something that is unique and clearly unavailable back home, you might "loan" them money. Otherwise, require that they save their money until they have enough to buy it. Don't make excuses or apologize - just help them count up how much they have, and how many they'll need to buy their desired item.
* Keep a record of what they bought. For younger kids, you will have to help them with this - keeping the receipts in their wallet is one good way to help them remember (or you to remind them) what they spent their money on. For older children, this can help serve as a track record of how easy it is to fritter away your money without realizing it.
* Guide them but don't condemn them. Your child may spend all of his money on Silly Putty, or plastic balls that he doesn't need, or on CD's that he ends up throwing under the bed. Talk to them about making wise decisions, and go through the list of items they've bought with their money (especially for younger kids; older kids may find this extremely invasive!). In the example above, the mother did a nice job of reminding her child of his goal, and what how much he needed to save to meet it.
* Help children keep track of how close they are to their goals, and help them plan ahead.
As your child learns fiscal responsibility, you will watch them start to weigh purchases much like we do as adults. Even three and four year olds can start to make decisions about toys and candy, with your guidance of course! Realize that they may make very odd decisions (my own son was enamoured of yarn for a while, and saved up for bright and colorful yarn, which he then cut into little pieces). Respect these decisions and focus on the fact that your child is learning money management.
Remember that the skills you teach your child today can pay off for them for years to come. Your child isn't just learning to budget his allowance; he's learning to plan ahead and how decisions impact each other. These are incredibly valuable skills that can be learned as early as three or four, and honed over years of use. The little boy in the supermarket is probably well on his way to fiscal responsibility. Why not start your child out with that kind of training now, too?
