Teaching your kids money management is very important. It doesn’t matter how young they are. There are specific financial lessons that you can teach them – even if they are as young as toddlers. You can give them the appropriate financial habits and skills that they can carry until they turn into adults. These are crucial as the time will come that they will have to make money decisions on their own without you around to help them out.
Managing their own finances will be a work in progress and you as parents are the first ones who needs to point them to the right direction. There will be mistakes when teaching finances to kids but the end result should far outweigh these hitches on the road. They can be in a better position to plan early for their financial needs and handle debt in the future in a way that it helps them reach their goals rather than pull them away from them.
One of the most common challenges that parents face with this idea is that some of them are still struggling with their own finances. It is quite difficult to teach the small ones when the teachers are struggling with balancing their own budget or putting money into retirement, reserve funds and other important financial funds.
But the important thing is that they get the basics and the idea that they need to learn how to manage money. One tip according to an article that recently came out in WSJ.com is that the kids need to learn math first before understanding finances. That is true because they need to understand how to handle numbers first but that shouldn’t stop you from letting them understand the importance of managing money especially at the start of a new year.
Money management and your kids
As you try to get a good grip in teaching kids the importance of financial management, here area few tips to get started. You need to remember how important it is to communicate with language that they understand and not to be too technical when explaining financial concepts to them.
- Count it with them. They might have received a good sum of money over the holidays as gift from family and friends and they are now thinking about what to do with it. They might also have been diligently putting small amounts into a piggy bank and has not touched it after some time. This could already amount to a big amount and your kids might not know what to do with the money that they have aside from buying candies and toys. Counting the money with them is one way to counter the sudden urge to spend and take the opportunity to tell them about how denominations work. This can be a fun activity between you and the kids.
- Give them options. Your kids may be too young to know their options but they will be capable of choosing what they can do with the money. Give them the choices that they have and step back and allow them to make decisions for their own money. Of course being the good parent that you are and the adult in the family, you don’t drop them in the middle of the mall and let them go crazy with it. SIt them down and with the money they have, let them know what their options are. Of course they can spend their money but you need to let them know that they can save some if it in the bank. Or you can even open up the opportunity to invest the money and earn more for future use.
- Help them make the right decision. Encourage them to make the right financial decisions with their money. Their initial instinct could be to spend what they have so they can also have the same things as their friends and classmates but you can nudge them in the right direction. Allow them to spend a portion of their money and encourage them to save or invest away the rest so they can have more in the future.
- Give them a task to manage in the household budget. One effective way to help them practice money management is to assign one item in your household budget which they can manage. One idea is letting them help you with your grocery budget. According to USDA.gov, the average food cost for a family is about $1300 a month. You can get your kids to help you put together your grocery list and as you get to the market, get them to cross out the items in the list as you put them in the cart and have them tell you if you are over or even under budget. Get them to help you monitor that aspect of your budget and they get an idea how to manage their own grocery budget in the future.
How to encourage better financial management for kids
Here are a few more tips to help parents encourage their children to practice money management at a young age. It is challenging but with the right attitude and approach, you can help them grow up to be financially responsible adults.
- Lead by example. Regardless how much you tell them how important financial management is, it will just go in one ear and come out the other when you yourself do not practice what you preach. Show them that you also value and manage your finances on a regular basis. Let them in on why you prefer one brand against another when buying clothes as you look at the quality and lower priced clothing. Explain to them that if your household appliances can be fixed rather than buying a new one then put off the purchase and have the old one fixed first. Show them that you also take your finances seriously and that you live by what you teach them.
- Show them the results. At the end of the month, show them samples of how much you were able to save by making the right financial decisions for the month. Treat them to an ice cream at the park and let them know that the money you used is part of the savings. It lets them appreciate the end result of proper money management and also makes them understand that spending is part of the whole process.
- Practice making a list of financial goals. Let your kids understand that having goals to aim for is important because it allows them to keep their focus on the goal at hand. One technique is to slowly introduce the SMART way of doing it. This means that the goals they put in should be specific, measurable, assignable, realistic and more importantly time related. They do not have to hit all five but help them apply the concept to their financial goals for the month and even for the year.
Money management is a tough task even for adults that is why it is more important to train the kids early on. They can use this as they grow up and manage their own finances. It is important to have a good concept of financial management when they find the need to take out student loans for higher education or when they get their first credit card. The seeds that you planted early on would be the ones that they will hold onto to be better at managing their own money.