If you have kids, you’re well aware that their eyes are always fixed on you. They watch carefully what you say and do when it comes to handling your relationships, your job, your habits — and your money. How you manage your finances and what you teach your kids about handling money will impact them for the rest of their lives — positively or negatively.
What can you do as a parent to help your kids learn smart money habits and build a strong foundation for their financial future? Here are ten tips to help get them headed in the right direction.
- Get them involved in saving money early
- Set a good example for them
- Pay them a commission, not an allowance
- Teach them to avoid impulse buys
- Educate them on giving & charity
- Give them the responsibility of a bank account
- Teach them to avoid borrowing (except for a mortgage)
- Teach them about the danger of credit cards
- Get them on a budget
- Introduce them to compound interest
It may seem old-fashioned, but there’s nothing like a good old piggy bank to get a child started saving money. Little hands putting coins in a container, even a Mason Jar, is a great start and provides an impactful visual of how small contributions can add up over time. Whatever type of container you use, make it glass so they can see their money growing.
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A University of Cambridge study revealed that a child’s habits with money are formed by the time they’re seven years old. If they see you constantly shopping online, pulling out your credit card every time you buy groceries or have dinner out, or hear the Amazon delivery truck pulling up to the house every other day, they’re going to think that’s good money management.
Most parents will eventually set their kids up on a weekly or monthly allowance when the child begins to regularly ask for money to buy “fun stuff.” Instead of just handing them an allowance because they asked or because their friends have one, teach them that money is earned — not given.
At the end of the week, add up their work and pay accordingly. Did they clean their room, mow the grass, wash the dishes, or take out the trash? Pay them for what they did, not just because it’s “allowance day.”
Kids, especially teens, can be big impulse buyers because of peer pressure. They often feel the need to “fit in” by wearing the latest fashion trends or breaking out the latest and greatest piece of technology.
Even though they may have saved enough money to pay for something, encourage them to wait at least 24 hours whenever they want to buy something over a certain dollar amount — like $25. They’ll learn that impulses often pass and that the shiny object they want so badly today will still be their tomorrow.
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Once they’ve started earning a little money, teach them about how they can not only enjoy spending it, but how it’s also important to give some to others in need. Help them pick a cause, church, charity, or just someone in a tough spot financially and make a gift. Over time, they’ll learn that giving affects the giver just as much as it does the recipient.
Opening a checking or savings account, online or off, takes money management to the next level. Accounts can be opened with relatively small balances and will prepare them to manage a larger account as they get older. An online search for “money apps for kids” will help you find apps to help them manage their money before and after opening an account.
Ultimately, kids must face the fact that they’re going to need more money than they have for a future need, like buying a car or paying for college. Start conversations about debt long before they need the money.
For example, tell them that instead of borrowing money for college, they have other options like going to a local community college, attending an in-state university, applying for scholarships, or working a part-time job while they’re a student.
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Once your child turns eighteen, the offers for credit cards will begin arriving in the mail. Hopefully, they’ve seen you act responsibly using credit cards. Regardless, have an earnest discussion with them about why credit card debt is a bad idea and the short and long-term impact it can have on them financially. Help them avoid the temptation of paying for anything with plastic, other than a debit card.
If you have teens, they should know by now that they can’t unintentionally spend every dollar they have. They should begin the habit of budgeting their income, no matter how small it is, and learn to plan how they’ll spend their money every month to meet their basic needs – before they move out of your house.
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Kids love magic, so teach them about the magic of compound interest. Show them online examples of how money in an interest-bearing savings account or mutual fund can grow by itself, just by letting time and interest do their thing. The sooner they learn this lesson, the better off they’ll be when it comes time to buy that first car or make that first tuition payment.
Kids have plenty of free time once you get them off of their phones or away from the gaming console. Sometimes, all it takes is a little “money motivation” to get them interested and involved in making money.
Talk with them about what interests them and how they can make money from it. Can they sell the arts and crafts they make? Do some landscaping and yard work for the neighbors? Sell baked goods at the farmer’s market or flea market? Help them turn their passion into profits. You may be fanning the flames for a future entrepreneur.
Teaching your kids about money at any age will take some of your time, but it can pay dividends not only for your kids, but potentially for your grandchildren, great-grandchildren, and future generations. Your children are going to learn about managing their money from someone; why not let it be from someone who cares about their future — you.
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