Managing money is a concern for all. At some point, we must begin paying for such thins as rent/mortgages, buying food, while we start earning an income. It's never too early or too late to start implementing money strategies. The following ideas are some financial fundamentals to help our kids develop good financial sense. And it's also a good refresher for us!
Budgeting Practice: Understanding how much one earns vs. how much they can save compared to paying for expenses is the first step in learning how to set up for long-term financial success to enjoy life and not worry how bills get paid. Money management training develops with a plan to set aside a certain amount each month for what we NEED to spend on monthly bills and what we WANT to spend on such things as entertainment. Having that NEED vs. WANT conversation as early as possible is a good practice for establishing spending decisions.
- Allowing your children to participate in how to make a grocery run is a great way to teach this concept. Review with them the household grocery needs and allow them to make some decisions of what they'd like to eat. Show them the amount of money budgeted for this grocery run and give them a calculator to tally up the items as you shop. If they see a WANT, that's a great teaching point on if it's able to be integrated into the budget or if we need to leave it.
Money Earned & Appreciating Income: Especially true for some younger children is learning the concept that money doesn't grow on trees - as we live in a fast-paced, "gotta have it now" society, coupled with social media and clever marketing campaigns enticing us to buy crap we don't need, it's easy to understand our kids need LOTS of practice in this area. Even us adults get suckered with these cool things that end up at the bottom of a junk drawer. Having our kids understand the value of earning an income for work is key to establishing the concept of valuing a dollar.
- Setting up a chore schedule with a dollar amount for each chore is a great way to establish this concept around the house. Even toddlers can learn this by picking up their toys for a reward they want.
- Allowing children who earn an allowance to think through their wants and creating a plan to purchase a toy is a great way to bring this concept to real life. There are wonderful and free kid-friendly money management apps that help drive this concept home in allowing kids and parents to set up a flexible chore list that can be tied to an allowance. These apps and websites, suitable for kids around 6-14, can be customized to allow your child to set a savings goal for something they really want and when they get "paid, ie. allowance," that automatically saves a portion of their income in a "savings" account and gives them the remainder in a "spending" account.
Fundamentals of Banking: Setting up a no-fee checking account along with a savings account is a pivotal point in any young person's life. It creates a sense of independence and freedom that is exilerating for some kids and scary for others. Working after school at a part-time job is probably the right time to set these accounts up as their employers will either give them their check or set up a direct deposit. While the fundamentals of banking might be daunting in explaining fees and interest, the earlier they can grasp the concept of needs vs. wants and saving before spending on wants, your kids will be more inclined to understand this added banking concept along with others such as credit card use and how to mitigate fraud risk.
Money Mistakes: Yes, it happens to the best of us - a free 14-day trial that you forgot to cancel the subscription in time or you over-drafted your account because you forgot that bill pays on the 10th instead of the 20th. Explaining to our kids that every once in awhile, these slip-ups do happen is normal and we need to refrain from beating ourselves up. Having our kids understand the importance of having an emergency fund or savings is key to solving these mishaps and moving on with our money management goals.
Learning the basics allows our kids to learn from their money management practices and mistakes they make in a supportive way can teach them to be more confident in their financial decisions. With your help and support, they'll develop good money management and savings that can eventually lead to investing.