Kids & Money
TEACHING YOUR KIDS ABOUT MONEY AND HOW TO MANAGE IT
One of my proudest parenting moments happened back in March when our oldest (a freshman in college now) asked me to help her set a spending budget. Knowing that no personal financial management is taught in school, we have been reviewing good spending and savings habits with our kids since they were out of diapers. But like all things in parenting, the message doesn’t not always sink in immediately.
Like teaching kids to brush their teeth, money management is not a one time conversation. Here are five ways to help your kids understand how to save money:
FOR ELEMENTARY STUDENTS
Set an Example - Little eyes are watching you. A study by the University of Cambridge found that money habits in children are formed by the time they’re 7 years old. Set a healthy example for them by discussing how you save money and when you chose to spend money.
Use a Clear Jar - The piggy bank is a great idea, but it’s opaqueness doesn’t give kids a visual. By using a clear jar, they see the money growing. As they are growing up in what is becoming a cashless society, it is important to ground their understanding of money as a physical item.
FOR MIDDLE SCHOOLERS
Teach Delayed Gratification - The impulse buy can destroy any budget (just ask Elon Musk about his Twitter purchase) so teach your kids to “sleep on it” before buying. Try this exercise on your next trip to the store: Talk about how you are not buying them anything for fun and that this trip is for the necessary items that you have budgeted for. If they want something for themselves, they can come back with their own gift cards from a birthday or save their money to get it on another day.
Give Commissions, Not Allowances - Don’t just give your kids money for breathing. Pay them commissions based on chores they do around the house like taking out the trash, cleaning their room, or mowing the grass. This concept helps your kids understand that money is earned—it’s not just given to them.
FOR HIGH SCHOOLERS
Teach them Contentment - Your teen is subject to the social media highlight reel that leads to the comparison trap just as much as you are. Help them understand that just because Caleb’s parents bought him a brand new car for his birthday, his parent’s don’t love him any more than you love them. Contentment starts in the heart, and showing love without the attachment of a physical gift or money spent can help establish that understanding.
Get them a Bank Account and a Budget - Opening a bank account takes money management to the next level, and will (hopefully) prepare your kids to managing a much heftier account when they get older. Teach them how to track their balance on the bank app, set up automatic savings goals and limit spending to only a portion of the money coming in. Since they are likely to be doing this ALL on their phones, you may want to consider new online bank options like Step or Chime.
Introduce them to Compound Interest and Get them Saving for a Goal like College - The power of interest is an amazing and the sooner your child understands the ability to have their money “working” for them, the better. Have your child research the cost of a goal like four years of undergrad at Columbia and then use this easy Compound Interest Calculator to set their monthly savings targets.
FOR COLLEGE STUDENTS
Explain the Danger of the Credit Card - If they understand the benefits of earning interest, it will be easy to flip that idea 180 degrees and show them why paying 20% interest for something you did not really need is never a good idea. If they are visual learners, try this Debt Repayment Calculator to show them how long it will take and how much interest they will pay for putting that ill-advised spring break trip on their credit card.
Teach them to Steer Clear of Student Loans - Before your teen ever applies to college, you need to sit down and have the “how are we going to pay for college” talk. Let your teen know that student loans should not be an option to fund their Bachelors Degree education. Talk through all the alternatives out there, like going to community college, going to an in-state university, working part-time while in school, and applying for scholarships now.
Help them Figure Out How to Make Money Post Graduation (and not end up back at your house) - This can be a touchy subject as they maybe really enjoying Sociology 103, but the “What do you see yourself doing with that degree?” question may be a good start. Maybe use a personal story to explain why passions don’t always make the best career choice or just leave this list of degrees and starting wages on the kitchen counter the next time they are home for a visit.
Remember that like good dental care, good financial habits are built over time.
If you or your family are interested in learning more about establishing great financial habits, please reach out to JNG Advisors to see how we can assist you on that path.