Every summer, thousands of kids across the country set up stands on their front yards to sell lemonade, or beg their parents for chores to do in exchange for a little more allowance so they can buy that super awesome cool thing they saw in the store that all their friends have now. And while it might be cute that these little entrepreneurs are working hard to earn the things they want, are they really managing their money wisely? How often to do you talk to your kids about good financial habits? Here are a few important tips you can share with your kids to ensure that they know how to manage their money now and into the future.
Teach Key Terms
Making sure you kids know the basic terms of banking and money management is a great first step to making them money smart. Make sure they know terms like Credit, Debit, Checking and Savings. And making sure they understand that money comes from hard work and not from the bank or the magic tree in the backyard is key to their future success with money management. Telling them how ATMs work—and that the money isn’t infinite—will help them grasp these concepts better later in life.
Patience is Important
When kids see their parents shopping, it seems magical. All they have to do is swipe a piece of plastic into a machine and everything they want is theirs. But as grownups, we know this isn’t the case. Teaching children that sometimes you have to wait to buy something is another important concept for them to learn. Waiting until the money is in place, or for the item to go on sale so it is less expensive, are key ideas that children should learn. Try teaching your kids about saving and waiting by having them set a goal, and then save to achieve that goal. Whether it’s a toy or a trip to the movies, encourage your kids to try and save their money until they have enough to buy the item or activity on their own. Don’t make it too expensive so that it takes them months to save the money, but something that they will have to work towards, and they will start to understand how Mom and Dad have to wait to buy what they want until they have the money for it.
Sometimes Choices are Hard
Like the previous example, understanding that tough choices are often involved in money management is also very important. Kids should learn that money doesn’t actually grow on trees and that you may not have enough money to buy everything you want. This is another way to encourage your kids to set and achieve their goals. They might have enough money for a game right now, but if they choose to wait a little while longer and gain a little more money, they could afford the upgraded version. Also, taking your children shopping with you and explaining why you pick one product over another is another way to show your kids how this idea can be applied to life. Ask your kids which is a better deal, the generic item or the name brand, and then ask which one they should buy and why.
The Importance of Savings
As your kids get older, and possibly get their first jobs, encourage them to set up a checking and savings account so they can manage their money and see how their savings can accrue interest over time. As they see their money grow in their savings accounts, they will begin to understand the importance of adding to their savings. It’s like free money, right? Well, it might seem that way to your kids, and who doesn’t like free money?
Make a Budget, and Make it Work
Budgets are even hard for adults to handle, so teaching them to your kids at a young age could be extremely beneficial to their money management abilities in the future. Help them sketch out a basic budget that shows them how much money they make from chores, allowance, or a part time job, and show them where their money goes each month. Breaking things down into categories like Entertainment, Toys, or Gas can help your kids and teens better understand where they spend too much or not enough, and will help them become efficient money managers as they grow older.
It might seem like an awkward topic to discuss with your kids, but once they can start doing simple math, they are old enough to understand some of these important ideas. And trust us, there will be much more awkward topics you’ll need to discuss down the road.