Financially Savvy Kids: Top 8 Money Habits that Your Child Should Know
Teaching kids how to manage money early is vital today. Children get a lot of information about money from friends and social media. There are online games and apps on money and money management.
Kids need not look elsewhere for money advice. Parents are there to guide them in the real world. Similarly, parents need to be proactive in discussing money matters. Teaching your kid about handling money is crucial. The ideas on spending money, budgeting, investing, and saving habits will affect them well into his adult life.
How to teach kids about money management, saving money, and budgeting would also help them in decision-making. You cannot teach children personal finances in one day. Nor can you develop capital handling tips and saving tips overnight. They will learn all these guidelines over time. It takes time and experience to learn about saving and how saving will work for them.
How to talk to kids about money matters early
Children and teens are curious about money. To appreciate what money is all about, talk to them openly. How to teach kids about money is part of their financial literacy. Talk to them on various financial topics like opening a savings account, how money works, and money management.
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Setting a good example for children about handling money is essential. Children are observant. Kids follow the ways adults take themselves.
Parents must be good role models for children to learn good financial habits that impact their adult lives. For instance, some parents shop and spend on items without looking at the price tag. Chances are, the child will end up making the same shopping pattern. Be a good example to them.
Teach them about credit cards and money budgeting
Managing personal finance also involves using credit cards effectively. Teach kids and older teens the concept of credit card usage. Explain to them the pros and cons. You can use credit cards to pay for big-ticket items in installments or an emergency buy. Financial responsibility is learning to use credit cards wisely will help children become more responsible.
Explain the concept of ‘needs’ and ‘wants.’
Youngsters are impressionable and easily adaptable to different kinds of situations. Like a good financial advisor, parents play a crucial role in making kids realize the order of priorities in their life.
For instance, your child is dying to buy a jacket she needs in school. She wants an expensive branded jacket and wants to show off in school. Even though she can pay for that jacket, point out that a cheaper but the quality brand or pre-loved functions the same as a branded jacket. Besides, also suggest that you can save more money.
When kids can identify ‘needs’ from the ‘wants,’ they learn to value what is essential – fulfilling the need first is necessary compared to the momentary ‘wants,’ which are usually impulsive.
Involve children in family decisions
Kids are often excluded from big family decisions when making big family-related purchases. Parents often shield them from any discussion and information.
Kids involved in the decision process with the family help a lot in their financial education. Young minds view things differently than adults view things. But a child’s insight or perspective could be valuable in the decision-making. Listening to a young child’s point of view helps build confidence.
Top eight habits in raising financially savvy children
1. Give kids a reasonable allowance.
Teaching children learning to save and handle money habits is achievable. The first step for a school-age child to know more about money is to give them a reasonable allowance. An allowance helps them understand the basic concept of money and how to spend it.
With a set allowance or pocket money, kids become aware of the value of the money it brings. Kids will realize that they can only spend money on items with a limited amount. The notion of ‘money grows on trees’ will disappear with a set budget.
Set an allowance according to the child’s maturity and capability to handle money. For example, you gave your 10-year-old child allowance or pocket money of $10 a week. Allow him to learn to budget his money and the freedom to spend it. Your child can learn from these money decisions.
2. Let kids learn the habit of saving for things they want to buy.
Financial education starts at home. Teaching kids about money begins with saving money in a piggy bank. Please encourage young kids to save money by telling them that even pennies and quarters have a corresponding value.
Help set up a savings goal for kids. The piggy bank is the quintessential representation of what saving is all about. Even a young child can understand this.
Usually, youngsters want something fancy, like a toy or gadget. Instead of buying that item, use that toy to motivate them to save up for it. Consequently, you are teaching your child two things: learning to save and focus on the goal.
For young to older teens, help them set up a bank account. Explain to them about online banking, interests, and the importance of identifying the “needs” and “wants.”
There are different types of savings accounts. Choose one that yields high interest, gives compound interest, and has a custodial account or parental controls. Additionally, you can double the amount they are saving at the end of the year for kids to keep. Match each dollar saved. In effect, the more considerable savings, the more significant incentive for them.
3. Let kids appreciate the habit of working hard for their money.
Children at a tender age can make personal contributions. Learning how to earn money is part of financial literacy. If your kid is keenly interested in selling to earn money, encourage him and help him achieve it. Budding young ‘entrepreneurs’ are focused and goal-oriented. Learning to earn money teaches children the value of hard work and responsibility, contributing to financial success. Making money through their efforts removes the idea of feeling entitled to get whatever they want.
Be your kid’s number 1 cheerleader – help your child find tasks, responsibilities, or jobs from which he can earn some money to improve his finances. Young school-age children can fix their beds, clean their rooms, take out the trash without being told, etc. For doing a good job, you can reward them with some money.
An older teen does his spending and can get a part-time job for extra money. Mowing lawns, babysitting, cleaning cars, working in a coffee shop, or doing computer work are some work activities great for teens.
4. Learning to save for the long term is a good habit.
Any certified financial planner can attest that saving is one of the top money habits. Whether talking to a young school-age child or teen, talking about saving long-term should be explained at a level they understand.
For example, your middle school kid’s goal is to buy a high-end bicycle. To afford to buy it, he has to save for it. Keeping his eye on the plan (bike), the process of saving money teaches him to be motivated, to be resourceful, and to be patient. Keeping your child motivated is good financial behavior.
5. Get them into the habit of comparison shopping.
Kids love to shop for toys. Before buying that toy, teach him to do comparison shopping. Take, for instance, your kid who wants to buy a remote-controlled car. He saved up to buy this toy with his own money. Before making the actual purchase, show him how to compare different car features, quality, and prices. Comparing two or three items will help him realize which item has the best attributes.
The more familiar he is with the cost of the items, the more he can judge which article presents more excellent value to him.
Comparing prices and features helps in decision-making. It also allows children to stick to a set budget and prevents them from impulse buying.
Saving for the rainy day is preparing for the inevitable – it could be an emergency fund or funds set aside for a long-term goal like buying property or college tuition. When kids see the bigger things, they will be more encouraged to keep on the saving habit.
Parents can do a’ parental match’ in varied saving choices to motivate kids to keep. It can come as savings accounts, investment accounts, 529 college savings accounts, or even a Roth Individual Retirement Account that kids can open in their names. Teens who have started investing will build wealth over time. They can get money advice service from a trusted expert on investment accounts worth keeping in the long run.
Incentivizing kids for their savings effort is positively rewarding for them.
6. Let kids learn to make decisions and learn from their mistakes.
Teaching money to kids at a young age help in making better decisions. Point out to kids that they can either splurge, set aside a portion to save, or give to charity. Allow children to make spending decisions. Making a decision empowers a child. It builds confidence and trust in one’s self. Often, kids will make mistakes along the way. Mistakes are ‘good’ financial lessons and learning experiences.
7. Teach kids to about delayed gratification.
Young minds are receptive to new ideas like delayed gratification. Kids learn the value of waiting for something good to come versus buying impulsively. As an example, you go shopping with your kid. Your kid spots an expensive toy that she wants to buy on impulse. Explain to her about timing and the value of waiting for something more special to come.
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In the future, they will not fall into the trap of the “buy now, pay later” impulse, which can potentially become unwanted debt.
8. Help your kids track their spending.
How to teach kids about money management, such as keeping track of expenses, is essential. Keeping track of costs helps children get organized. They learn to figure out the different prices of items spent.
While it is true that keeping track of expenses is difficult, this process is necessary. Whether the item is big or small, every cost has to be considered. How do you help kids with this task? You can help your kid write down all the expenses in a notebook, even a young Ask your kid to write down the date, amount of money, and each item he spent on. He can track his expenses and know if he still has money left.
It is the same with teens in middle school or senior high school. Most teens are paying bills and more items like clothes and shoes. They can use a notebook or an excel sheet. Make a budget worksheet that calculates all the costs and how much is spent every month. Show them how to use an excel sheet to track expenses and file receipts.
Either mode of tracking expenses is suitable. Keeping track of costs is part of learning how to manage money effectively. When children are familiar with this process, managing money will be easier.
Conclusion
There are no complex rules on how to teach kids about money habits and financial planning. Adjustments are easier once kids learn the ‘tools’ and concepts of handling money.
Developing these remarkable habits take time. As they grow older, their financial decisions will be successes and failures. Helping kids cultivate these great habits gives them the extra edge. Every parent desires their child to become savvy in managing money and saving money. Your child’s future looks brighter with better financial management and disciplined spending.
Frequently Asked Questions
1. Should we pay children to do chores?
It depends on the parenting style. A much better approach to this matter is to set up a ‘bonus money. On top of the basic allowance, kids are paid bonus money for doing more than basic chores.
Older children get paid bonus money for extra tasks like babysitting, cleaning the car, or doing an errand for a grandparent.
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2. Should we give an allowance to a child? What is the average budget allocated?
Research shows the average allowance given to a ten-year-old is $5-10 a week. Teens receive a more considerable amount as they better understand spending money. The budget depends on a child’s ability to handle money and a parent’s financial means.
3. Should a child have a credit card?
It depends. Some parents want to, while others don’t agree. However, a survey reported that only 10% of parents have allowed children to use credit cards. Take into consideration your child’s ability to handle money. If you decide to issue a credit card to your child, make sure that it is a credit card with limits. Building good credit is positive for your child in the future.
4. Can a child have a debit card?
Giving a debit card to a child help develop money management and spending power. Yet, parents need to gauge a child’s ability to use a debit card or not. A prepaid debit card has limited funds. A child has to stick to the funds allocated in the debit card.
With a debit card, you can teach kids about debit card safety, using the PIN, online transactions, cookies to collect information, and avoiding dangerous places for swiping cards.
