7 Ways to Teach Your Kids about Smart Money Management
Money management is probably one of the most common lessons every parent teaches their kids — knowing or unknowingly. You may have step-by-step discussions regarding money and finance or you might do this practically, like during weekly grocery trips.
Set an example
A study by the University of Cambridge found that money habits in children are formed by the time they’re 7 years old. Little eyes are watching you. If you’re slapping down plastic every time you go out to dinner or the grocery store, they’ll eventually notice. Or if you and your spouse are arguing about money, they’ll notice that too. Set a healthy example for them and they’ll be much more likely to follow it when they get older.
Tell them the truth
Kids are perceptive. If you've been acting anxious and on edge lately, they've noticed. Rather than let them wonder why Mom & Dad are working so much lately or constantly talking about money, explain (on their level) what's going on in the family's financial world.
Explain to them how much things cost
Some parents are surprised to find out that their kids don't have a very good grasp on what things cost. A great hands-on way to open their eyes is to take them on a "money tour" around the house. For example, kids might not understand that hot water costs more than cold water, or that bumping up the heat results in higher power bills. This exercise will teach them how they can conserve and thus help the family save money.
You can also pile up all of the bills for the month and have them look at the amount on each one. Show them what the family's cost of living is and again reiterate the areas where they can play a part in reducing the costs.
Start them saving and investing early
|Photo: The Irish Times|
It's never too early to start saving, and the sooner you can instill the importance of saving money into your kids the better. After they start earning an allowance, have your kids save a significant portion (up to half) of their allowance money toward longer-term goals, such as college (just be careful about putting money in children's names as doing so can harm college financial aid awards). Tyson recommends that children reserve about one-third of their weekly take for savings. As they accumulate more significant savings over time, you can introduce the concept of investing.
Stress the importance of giving
Once they start making a little money, be sure you teach them about giving. They can pick a church, charity or even someone they know who needs a little help. Eventually, they’ll see how giving doesn’t just affect the people they give to, but the giver as well.
Give commissions, not allowances
|Photo: Inc. Magazine|
Don’t just give your kids money for breathing. Pay them commissions based on chores they do around the house like taking out the trash, cleaning their room, or mowing the grass. Dave and his daughter Rachel Cruze talk a lot about this system in their book, Smart Money Smart Kids. This concept helps your kids understand that money is earned—it’s not just given to them, according to Daverramsey.
Practice budgeting together
Give your child a budget—for your family groceries or a home project—and have them create a list of wants and needs with costs listed for each item. Have them make a “buy” list that doesn’t exceed the budget. Ask them how they came up with their list—did they include everything they need? How did they choose what else could fit in? The lesson learned is: It’s important to get what matters most before buying unnecessary wants on the list, as Myfabfinance reported.
Long-term rewards of smart money management
Learning how to manage money early in life can help children become financially responsible teens and young adults. Shaping money habits and building sustainable relationships with money doesn’t have to be a struggle—repetition, routine, and real-life practice are key. And, of course, modeling good behavior. When your kids see you make smart money choices, they’ll be better equipped to do the same as they grow up, too.
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