May 19, 2021 Teaching Your Children About Money
Even before your children can count, they already know something about money: it’s what you have to give the ice cream man to get a cone or put in the slot to ride the rocket ship at the grocery store. Every parent wants to raise their children to be responsible, including with finances. So, as soon as your children begin to handle money, look for opportunities to teach them how to handle it wisely. Below are some steps parents can take to help build that financial responsibility.
Giving children allowances is a good way to teach them how to save money and budget for the things they want. How much you give them depends in part on what you expect them to buy with it and how much you want them to save.
Some parents expect children to earn their allowance by doing household chores, while others attach no strings to the purse and expect children to pitch in simply because they live in the household. Some even compromise by giving children a small allowance and adding opportunities to earn extra money by doing additional chores.
When it comes to giving children allowances, consider these tips:
- Set parameters. Help your children understand what they may use the money for and how much they should save.
- Make allowance day a routine, like a payday. Give the same amount on the same day each week.
- Consider “raises” for children who manage money well.
Take it to the bank
Piggy banks are a great way to start teaching children to save money by deferring gratification, but opening a savings account in a “real” bank introduces them to the concepts of earning interest.
While children might want to spend all their allowance now, encourage them to divide it up. Allow them to spend some immediately while helping them save some toward goals that are larger than one week’s income. Writing down each goal and the amount of weekly savings needed to accomplish it will help children learn the difference between short-term and long-term goals. Some parents match the long-term savings account to incentivize increased savings.
Allowances can also be an opportunity to teach children to share with others less fortunate than them. Consider encouraging your children to set aside a portion of their allowance to give away to their church or other community charity. It can help them feel a part of their community while having the side benefit of appreciating their situation. Products like the MoonJar separate savings into three categories, “Save, Spend and Share,” which can introduce this concept at a very young age.
Television commercials and peer pressure constantly tempt children to spend money. When it comes to making good buying decisions, guide your children on how to compare items by price and quality. For example, when you’re at the grocery store, explain why you might buy a generic cereal instead of a name brand.
Consider setting aside one day a month when you will take children shopping for themselves instead of buying them an item every time you go out. This encourages them to save for expensive items and consider what they really want rather than buying on impulse. For “big-ticket” items, suggest that they might include them on a birthday or holiday list.
Don’t be afraid to let children make mistakes. If a toy breaks soon after it’s purchased or doesn’t turn out to be as much fun as seen on TV, these lessons can help with future decisions.
Next month we will focus on Older Children. We will look at savings, budgeting, and credit.
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Market Update: February 2023