It is essential to start teaching your child about good spending habits from an early age. Then, as they get older, they will utilize those tips and be able to make smart financial choices for their own families. It can be difficult for a child to understand the difference between cash and digital currency, but the earlier you start, the better chance they have of being financially responsible.
Before your child turns seven, they should already have a basic understanding of what money is and how it can be used. Even if you pay with a debit or credit card, explain to your kids that you’re using money to make purchases. Show your kids the receipt so they begin to understand that your actions are paying for monetary items.
When your children get a little older, you can introduce them to saving. Create a short-term goal for your child, like a toy purchase, and see if they understand that every dollar saved can go towards that goal. This also helps your child learn about delayed gratification, and they will appreciate the purchase more because they worked hard to purchase the item themselves.
Around the time your kids are gearing up for college, it’s a good idea to teach them about investing and how they can get the most back from their money. If they seem interested in investing, consider opening a custodial account with a brokerage like Charles Schwab, E*TRADE, Fidelity, or Stockpile. These companies can also guide your child toward the best possible investment opportunities.
Four Tips to Teach Your Children How to Spend and Save
- Spending: Learning what spending is and how to budget is arguably the most essential financial skill you can teach a child. Once children realize that purchases cost money and there is a limited amount of money to go around, they will start to learn about the importance of being financially responsible. Children have to learn that in order to afford everything they need to survive, they must plan ahead and adjust accordingly based on unexpected circumstances that arise.
- Spending Activities: Young children can learn about spending through an at-home store. Give your child a small amount of money and create a store with items of varying costs. This will help them realize that they cannot buy every single item at the store and that they will need to prioritize what they want the most. They can even save their funds to make larger purchases in the future. When they get older, you can even introduce spreadsheets or apps to help keep track of their spending.
- Saving: Another important financial lesson for children to learn is saving. They need to learn that there is a difference between saving money in an abstract savings fund and saving money with a purpose. When kids start entering the workforce, they may choose to save a regular percentage of their income or a certain amount each paycheck. Consider matching their savings with $0.50 as an incentive.
- Saving Activities: Help your child set an attainable savings goal and make sure the money being saved is a visual reminder. Consider having your child add money to a jar or color in a section on a whiteboard each time they achieve a new milestone. This visual representation is helping children start out so they can see that their money is being saved for a purpose. Another great way to teach your children about savings is to visit your local credit union and open a savings account for your child. Many credit unions offer financial programs designed for children and can offer additional tips and resources to help your child even more on their financial journey.