One of the most important life lessons you can teach your children is how to be responsible with money. It will help them succeed in life by teaching them to make responsible choices instead of letting temptation seep in. These lessons start early, so here are five tips on teaching your child to be responsible with money.
Teach your kids how to money is earned.
Allowances can be a great way to teach your child how to be responsible, but they should be an apparent reward for effort from your child instead of something that is assumed to be given each week.
Instead, set up a chore chart with chores that you expect your child to do each week. This chart will help motivate your child and keep them accountable, and at the end of the week, you pay out your child’s weekly allowance according to completed jobs on the chart.
A chore chart teaches your kids to be knowledgeable about their responsibilities and how it can help them earn money instead of having it given to them. These are basics that most schools aren’t teaching kids, so it’s something you should start early in their development.
Teach your kids how to save their money.
The first time your child asks for an expensive toy or gadget, it’s an excellent learning opportunity to teach them the value of saving their money. Help your child set up a savings goal for the item by estimating how much they earn for their weekly chores and how long it would take to save the appropriate amount for the thing they want.
Setting savings goals like this helps your child manage their savings by planning for the things they want in life. This ability to save is an excellent skill in itself, but it’s also one that must come with a proper understanding of what is smart saving and what isn’t.
Teach your kids how to be smart with spending.
It’s not only important to teach your children how to save money, but you should also show them how to be smart with spending it, too. The grocery store is a great place to teach kids about price comparison and getting the most bang for your buck. Compare the number of cheese slices between two different brands to help kids understand the decision-making process when it comes to everyday necessities.
You can make it a game by telling your child you’ll give them the amount of money they help you save by making a few price comparisons on commonly purchased items on your grocery list that week.
Teach your kids the difference between needs & wants.
Every purchase seems like it’s a smart purchase if it’s wanted, which is why it’s important to teach your children about the importance of delayed gratification to reach their goals. Helping them differentiate between needs and wants will help them make better life-long financial decisions.
Some suggestions for teaching your kid the value of delayed gratification include asking them to wait a week for a luxury item they’ve expressed interest in to see if they still think about it and want it. You can also show them a list of your current bills for things like electricity, cable, Netflix, and other expenses and ask them to categorize your expenses as a need or a want. This categorization of your budget can help give them a frame of reference for what should be a priority and what shouldn’t in a household, even at a young age.
Teach your kids to borrow money responsibly.
As your children grow, they will set their sights on more expensive things. You can use this as a teachable moment by helping your kids learn how to borrow money responsibly. For example, if your child has been eying a new bike or scooter, sit down with them and explain the cost of such an item. Then figure out how long it would take them to save up enough money from their weekly chores to purchase the item.
You can suggest your child can save half of the cost of the item of interest and you can loan the other half, but with a modest interest rate of 5% attached to the loan. Then figure out how much your child will repay you for the loan from their weekly chores with the included interest rate. This setup helps your child understand the cost of borrowing money and going into debt at an early age, so they’re more prepared to deal with debtors in their young adult life.
It’s never too young to start teaching your children about being responsible with their money, but try to incorporate it into their lives as a fun game that gives them valuable critical thinking skills towards money management. If you can make the activity fun, your child will be more receptive to the life skills they’re learning from you.
But you should remember to lead by example and avoid teaching your kids the wrong way to handle money because they’re impressionable and your actions with money speak as loudly as your words.