Smart personal finance habits are great skills to give your kids. As a parent, you can help teach the basics of money management to your children in your everyday life.
Understanding budgets is a crucial piece of managing money. In most cases, budgeting has more to do with instilling healthy spending habits than anything else. So the earlier you’re able to instill these habits in your kids, the more of a head start they’ll have when they enter the real world and start managing their money on their own.
Budgeting lessons can be learned at a young age—as soon as kids start to understand the concept of money. Here are some ways to encourage smart budgeting habits in your children.
Give Them a Fixed Source of Income
Many families give children a weekly or monthly allowance in exchange for chores they do around the house. This fixed source of income is a great tool to start teaching budgeting lessons because it can help kids learn how to save for things they want to purchase.
If your child receives $5 per week, for example, and a toy they want to buy costs $8 at the store, they’ll have to understand that it takes two weeks to save up enough money—and you can help them through the process of saving up their funds and then buying the toy, demonstrating the reward for their patience and effective budgeting.
Open a Children’s Savings Account
A children’s savings account is a great tool to teach children the basics of how bank accounts work. You can also use this account to show them the rewards of tucking money away, instead of spending it as soon as it gets into their pocket.
Even with a small interest rate on a savings account, children can see how money invested into their account grows over time. The earnings will be small, but it can make a big impression on kids.
Our Junior Savers Account can be a great teaching tool for young children. You only need $1 to open a new account!
Consider Giving Kids a Savings Incentive
Want to encourage saving instead of spending? Consider offering children an incentive for saving, such as making matching contributions to their savings account.
This could be very effective when your child wants to save up for a major purchase, such as a video game console. You can offer to match whatever contributions they put into their account, giving them a significant reward for building up their savings.
This will help kids understand the cause and effect of budgeting and saving, and it will help them develop the patience and diligence needed to save for long-term goals and to stick to their spending budget.
Involve Kids in Coupon-Clipping and Comparison Shopping
Shopping within a budget? Demonstrate how you stay within your means by involving kids in money-saving activities such as coupon-clipping and/or comparison shopping to find the best value.
Whether you’re trying to keep within a fixed budget or just trying to pay the smallest amount possible, this extra legwork can show kids the value of doing your research and taking extra steps to reduce your spending.
Allow Them to Make—and Learn from—Mistakes
As a parent, it’s tempting to steer your children away from purchases they might end up regretting, especially if they’re being short-sighted or forgetting about their long-term savings goals.
But these mistakes are great learning opportunities, and they can come at an age when money mistakes have very small material consequences. There’s value in children feeling the natural consequences of spending all of their money on an item they bought on impulse.
Allow your child to make these decisions, and then offer them guidance and coaching to help them avoid similar mistakes in the future. And if returning the purchased item to the store is an option, you can help them process that transaction, too—it’s helpful for kids to learn that some mistakes can be corrected.
No matter what stage of life your child is in, you can always teach smart money habits by modeling the kind of behavior you want them to emulate and paying close attention to your tone and the words you use when speaking about money.
If kids get positive exposure to money concepts and have a chance to practice simple activities such as saving and spending wisely, they’ll grow up to be more confident managers of their own money.