The ABC’s of money are easy to learn, but tough to apply. Just like with other healthy habits, your ability to set clear goals and delay gratification can make or break your finances.
Teaching this concept is critical to helping young children avoid money troubles later in life. For example, saying “No” to purchasing the next-generation mobile device today could keep you on target for buying a new car next year.
But how young is too young to start talking about finances with children? Financial literacy experts continue to point to a Cambridge University study confirming that adult money habits are set by the age of seven. Don’t panic! Children ages eight and above can still learn the necessary financial skills. Researchers admit that reversing bad habits won’t be easy. But, it’s possible when you combine education with real-life experiences.
Goal setting is necessary
Work with your children to set a savings goal related to their interests. Otherwise, they may see it as a pointless activity. Encourage a short-term goal that’s linked to buying a special toy or paying for a fun experience. Help your child brainstorm a list of possibilities. Settle on the item and expected cost.
Use a calendar to establish a short-term savings timeframe. For example, saving $100 over 20 months might cause a child to lose interest. But the same amount over 10 months may keep them motivated. Offer to match their savings when they reach a set amount.
Introduce the concept of a budget by letting them earn money toward their goal. Income sources include an allowance, extra chores, birthday money, and holiday gift money.
A colorful goal setting chart can make the entire process fun and exciting for your little one. Let them add stickers to the chart each time they make progress toward their goal. This might be when they say “No” to an impulse buy, make a savings deposit, or earn money.
Saving isn’t optional
Since kids enjoy playing grown-up, let them do so all the way to the bank. Require them to put a part of their birthday money, allowance, or other income into a savings account. Establish a set amount, such as 10%, to develop a consistent habit. Then, each time your child receives money, encourage them to deposit it into their youth savings account.
A 2017 Parents, Kids & Money Survey found that kids ages 8 to 12 who manage their own money have better savings habits. If you deposit their money for them, they lose out on a valuable habit-forming opportunity.
Mistakes are welcome
We naturally want to protect our children from harm. Thankfully, making a financial mistake while in grade school isn’t likely to cause lasting damage. Allowing your little one to live with a money mistake might be hard at first. But, it may be more effective than a lecture at teaching them that once they spend the money, it’s gone.
Give your child permission to spend $5 in their favorite store. After they pay for the item, they may catch on that they have to give up something (money) to get something (toy or candy). Let your child live with the purchase even if they’re disappointed with their choice. If you try to “fix” the situation, you might undo the benefits of the experience.
Shopping as teacher
Grocery shopping might be one of the best ways to teach kids about money. It provides a chance for them to pick out items based on price and see the physical exchange of money for products. Let them help plan your next trip to the grocery store. You can ask for their help in creating the shopping list and finding coupons.
As you visit each aisle, use the opportunity to explain your buying decisions. This might be as simple as stating, “We can save 50 cents by using a coupon”.
Teaching your little one about finances takes time and patience. The smart money habits you teach them today can stay with them for the rest of their lives.