With the kids at home until next school year, and so many parents working from home, this time marked by COVID-19 is also a great time to teach your children about smart money management. Many parents have this task on their to-do list but don’t quite know how to explain proper money management to their kids. Here are our suggestions, which you can customize to your children’s age levels.
1. Explain To Kids That Your Money is Finite
As the old saying goes, money doesn’t grow on trees. But many kids, especially young ones, don’t realize that families have a finite amount of money, especially in our plastic-carrying society when it’s so rare for mom or dad to pull out dollar bills at the grocery store anymore.
In as age-appropriate terms as possible, we recommend you explain to your children that mom and dad only make a certain amount of money every year. It’s your job as parents to spend that money on your family’s needs, then wants. After you’ve spent your money, it’s gone.
2. Teach Your Kids to Save for Short-term Goals, Long-Term Goals, and Emergencies
Kids need to understand that money isn’t just for immediate spending, but for saving, too. If you want your kids to grow up to be savers, you need to model that behavior for them.
You can start by explaining how you save up for short-term goals, such as a special toy or video game they want from a big box store. Rather than just buy it immediately, you slowly put away the necessary money until you have enough to buy the desired item.
You also need to explain long-term savings and investing goals as well. While young kids won’t be able to fathom the concept of saving for retirement, you can teach them about savings and investing options that will come to fruition sooner. For example, you can talk to your teen about the importance of saving the money she earns babysitting to go towards buying her first car when she turns 16. Elementary school children can understand that mom and dad invest money in a college fund to pay for that schooling when the time comes.
Kids also need to know that saving is important for rainy days. Whether your emergency is an ER bill for a broken bone or paying your insurance deductible after a fender bender, kids need to understand that it’s never too soon to start saving for life’s unexpected events.
3. Make Sure Your Kids Know that Money Comes from Work
With few exceptions - such as receiving an inheritance or hitting a lotto jackpot - money comes from only one place: work. Teaching your children that hard work results in money is a great way to build their work ethic, even if they’re only in elementary school. For this reason, we don’t recommend you give kids a general allowance that they get no-questions-asked, but that you set up a series of chores that your children are paid to perform every week.
It’s Never Too Soon to Open Your Child a Savings Account
To really drive home the concept of saving and managing money, we recommend you open up a savings account at a local bank or credit union with your late elementary or middle school-aged children. By regularly going to the bank to make deposits, they’ll better grasp the concept that putting away money for short-term goals, long-term goals, and emergencies is an important part of an adult’s daily life.
Contact Us for More Advice
If you have any further questions about discussing proper money management with your kids, we’d love to help. Simply call us at (985) 792-5232.