We’re often asked for tips on teaching money basics to kids, even beginning at an early age, to help instill good money values for life.
The topic offers up a huge canvas that could be filled. But let’s start with a few basics. One of the simplest steps involves getting the child a piggy bank at a young age. Teach them the piggy bank is used for collecting money received — whether from gifts, an allowance or doing small chores. Encourage him or her to think of the piggy bank as a ‘miniature’ bank which holds their money until it is needed at a later time.
Help the youngster start to understand that the money accumulating in the piggy bank has 3 parts: 1 for spending, 1 for giving, 1 for saving. Then discuss the importance of establishing goals, along with priorities, for how they will allocate their money. The next time they wish for a much-too-expensive treat, it becomes a ‘teachable moment’ to refresh them on their goals and/or explain that the piggy bank does not yet have sufficient monies to buy that item. To encourage saving for larger expense items, consider matching some of the child’s savings as an additional incentive.
As kids become a little older and receive a larger allowance or have a part-time job, give them responsibility for paying for some of their own expenses. Clearly identify which specific expenses they will take over, along with the amounts. Next, help them draft a simple, written budget. This should list their income, however small, plus each of the expenses they are responsible for, along with estimated amounts. This exercise also provides a great opportunity for teaching the concept that overspending in one area will impact other expense categories: Yes, you can eat at the mall food court with your friends but you’ve still got to be able to pay your cell phone bill that’s due next week.
Using envelopes is a great way to teach and convey the basics of this message. Write the name of each of the child’s various expense categories on the front of an envelope, along with the dollar amount budgeted for that item. You could even go a step further and place cash equal to the budgeted amount inside each envelope. As the child needs/plans to spend money earmarked for an expense, they would simply remove the money from inside the respective envelope and use it for the purchase. This process also easily demonstrates that money revolves around a system with checks and balances. The money supply is indeed limited, so it’s very important that purchases be planned carefully.
Parents may find it difficult to practice tough love when a child overspends, especially as they watch him or her mope around the house after, as an example, their phone service has been shut off. But often these difficult experiences are the best teachers. And they provide parents, who are still there as a safety net, with another valuable opportunity for helping guide development of the child’s money skills.
Yes, even small beginning steps such as these can provide a solid foundation for your child learning how to successfully handle money.
Image Credit: Jacob Edward