Teaching your children good money habits early on could help them make the right decisions once they are older. Learning how to save, give, spend, and invest are crucial skills for financial success as an adult. Andrew Housser, co-founder of Freedom Debt Relief notes the importance of education. He points out, “Help kids learn about finances. Involve your children in living on a budget, setting goals and working to achieve those goals.”
Talking to your kids about finances and modeling healthy financial habits are both good ways to introduce your kids to money, however, for it to really sink in, you need to incorporate actionable steps so your kids can experience managing money on their own. Freedom Debt Relief recommends these four ways to teach your kids good money habits.
- Provide opportunities to earn money.
A way to really add value to money for your kids is to give them a chance to earn it. Give them a weekly allowance based on chores that they do each week. The number of chores and the dollar amount should be based on their age, ability, and what you can afford to pay them. Try to be consistent with giving them the allowance each week. If you aren’t consistent about it, then the allowance could have less of an impact. However, Freedom Debt Relief recommends that you hold them accountable for their actions. If they do not complete the tasks assigned to them, they should not receive their allowance.
- Open a bank accountwith your child.
Let your child open an account, which you are the custodian on, where they can save their allowance, birthday money, or any additional money they may receive. This introduces them to how the banking world works and how to save money. Freedom Debt Relief recommends that you check local banks for programs for kids. Many of them have savings plans and even rewards for the little ones (like stickers) who make a deposit in their account. Older kids can even get a check or debit card that you can use to teach them how to manage spending.
- Teach them how to allocate their money.
Learning to save money is a vital skill that children should learn, but it isn’t the only money skill. Freedom Debt Relief suggests teaching your kids how to make smart decisions with their money. They should learn how to allocate money for saving, spending, giving, or any other categories that you find important. How you and your kids specifically allocate the money is up to you. The purpose is to teach them how to prioritize and establish good habits early on.
- Reward them.
Depending on their age, your kids may need an incentive for establishing good money habits (and that sticker from the bank for making a deposit might not cut it). So, make sure that as you allocate money, a portion of it is for their own spending pleasure. Freedom Debt Relief recommends that you let them have the power to decide what they want to purchase. If it is something expensive, then this is another opportunity to show them that they’ll need to save up for it. Or, if they are anxious to spend it, let them do so. They may later regret not having enough for that “big” thing that they wanted, but you can point it out to them that they’ll need to save up for it. Mistakes are good for learning too.
According to Freedom Debt Relief, by establishing these good habits early on, your kids could be less tempted to make impulse purchases or run up unnecessary debt once they are older. They’ll also learn how to allocate money for now and the future. These skills will equip them for the financial challenges of adulthood.