Being a parent is hard work at the best of times, and even more so when it comes to money. My daughter took her first twenty off me at the ripe old age of 6 months and it only ever gets more expensive.
I think it’s very important to teach kids about dealing with money and appreciating it from an early age. It might just save you a chunk of change and more importantly, it will enable them to be financially independent.
Here are five ways that I’ve used to teach my daughter about money:
Get them involved.
In the UK we have a number of child-specific savings accounts known as the Junior ISA (Individual Savings Account). You invest a certain amount of money until they are 18 and the money becomes theirs. This is a perfect opportunity to get them involved in the decision-making. You can spend time researching different savings accounts with your children and teach them about the positive or negative aspects as you go. If they feel part of the process, they are much more likely to take an interest and in turn, learn more about how the savings accounts work.
Give them control of the money.
When kids are not given responsibility for money before they become adults, they often believe that it will always be provided for them. I’ve seen this happen first hand and it can be dangerous and expensive. Give them a budget of say $50 for the month to spend and let them control that money. The first time they might splash the cash on frivolous items, but when they want other things and can’t afford it, they will soon learn the value of a dollar and how to cut back in other areas to afford things they really want.
Get them to set goals.
Kids want the most expensive things, which is a perfect opportunity to teach them about goal setting. If they want a PS3, for example, sit down with them and work out a timeline based on their allowance. If they get $80 a month, for example, you could explain that if they saved $40 of that, they could afford a $249.99 PS3 in just over 6 months. Then show them how they could get the console in just 4 months by saving an extra $20 a month. Showing them how reducing expenses makes goals come faster is an excellent lesson and one that many children respond well to.
Show them the power of making money.
You can employ your children as Chief Rate Watcher in your household and get them to monitor the best savings rates to see whether a switch might be profitable. Explain how much per year you can make by investing in high-interest savings accounts and you turn a boring topic into something quite interesting. That PS3 they wanted? If they worked for just 4 hours on a weekend washing one neighbours car an hour, they could make an extra $40 a week on top of their allowance. Suddenly, they can afford the PS3 in just 2.5 months. This is a hugely powerful motivator for kids!
Show them the dangers of debt.
Teens are the perfect age to be explaining more complicated (and boring) topics like debt. A great way to do this is to lend them a certain amount of money and have them set up automatic payments to you each month to repay it. This will show them how debt repayments reduce the amount of money available for other things and how it can be overwhelming. It will also show them how easy it is to go beyond their means because I guarantee there will be months at the beginning where they aren’t able to repay you. The really hardcore among you might add interest to their repayments and late fees too – I’m just not that evil!
I’m only really scratching the surface with teaching kids about money but hopefully, you’ve got some good ideas here to build on and develop. If you’ve got any financial lessons you’ve taught your children, please drop a comment below because I’d love to hear how other people approach this topic.