7 lessons you can teach your children about money
1. Give them control of money. If kids don’t have control of money before adulthood, they learn that money will always be provided for them, that they don’t have to be responsible for their spending or their future. And when they finally get control of their own money, they apply those lessons, by spending liberally and not worrying about the future.
Instead, give your kids control of money. I suggest taking some money that you already have in your budget, and giving them control of it. For example, if you currently spend $2,000 a month on eating out, perhaps give your child control over $500 of that. And do the same for clothing and toy spending – don’t add to your budget, but allocate portions of your budget to them. Give them complete control over that money.
The result will probably be that they spend too much on frivolous stuff. At first. But when they want other things, they’ll have to learn to save for them, and cut back on other areas. Eventually, they’ll learn how to make decisions, through trial and error. It could take a while, but it’s better they learn now than when they’re adults.
2. Teach them to save for money goals. Once they realise that there’s more to money than just spending on whatever their latest impulse is, they’ll want to buy something larger than the amount they have on hand. That’s when you teach them about savings goals.
“You want to buy a game? Well, let’s find out how much that costs. Now that’s how much you’ll need to save. If you take $200 from your monthly budget, you could have that in months. If you take $300 from your monthly budget, you could have it in less time. But either way, that will mean cutting back on McDonald’s and buying little toys every weekend.”
You might also create a chart on the computer that shows their goal, and little savings milestones along the way. That way they can get excited about watching their savings grow.
3. Teach them that reducing expenses makes goals come faster. This goes hand in hand with the above lesson, and if you teach them about savings goals, they’ll probably learn this lesson on their own. It’s common sense, and kids are smart enough to figure it out: If I want to get to a goal faster, I have to save more – which means spending less on other stuff.
But it’s worth reinforcing with a discussion about spending and saving, and by talking to them about the decision they’re making every time they spend money.
LESSON ON INVESTING
4. Teach them how your money can make money. This is the lesson on investing, and it’s a lesson many of us can learn. It’s one thing to save, where you get perhaps five per cent interest. But if your kids are going for short-term goals, they probably won’t see much compound interest happening. You’ll need them to make a longerterm goal, such as a trip once they graduate, if you have a teenager, or a down payment on a car, or even something a little smaller. Whatever the goal, teach them about how they can put their money in certain investments, and how those investments will grow over time.
That growth is their money earning money for them. It’s free money, almost, but the cost is not spending on other stuff in the meantime, and getting into the habit of investing the money. And it’ll help them get to their goals faster.
5. Teach them about creating a budget. It doesn’t have to be a complicated budget, but what you really want to teach them is how to plan their spending, instead of having a big wad of cash that keeps getting smaller with every impulse buy. Something simple, like $500 for savings for a bicycle, $200 investing for a longer-term goal, $300 for a birthday gift for mom, and $200 for spending. Then teach them how to split the money up and how to keep within those planned amounts.
Make it simple and easy, so they don’t grow up thinking that budgets are hard and onerous (like many of us grew up thinking). If they get into the habit now, it’ll pay off huge when they grow up.
6. Teach them to pay bills. Cable TV, Internet, light. If you let them help to pay some of these bills, you’ll teach them conservation, if nothing else.
7. Teach them about the dangers of debt. This probably isn’t a lesson they can understand when they’re six years old, but when they’re teenagers, they can grasp the concept. You’ll need to discuss things like loans, credit cards and other debts. They’ll soon learn that paying debt payments reduces how much they have to pay for other stuff, and how the debt payments can get to be overwhelming.