- Do you grab an expensive latte on the go or bring coffee from home?
- Do you buy good quality stuff that lasts or the cheapest thing?
- Fresh food or fast food?
Your choices are being recorded in the tiny memory banks inside your child’s head and they are going to influence how they behave as they get older.
Rather than hoping they pick up the right cues, it pays to teach your kids good money habits throughout their lifetimes.
Why it’s important for kids to know about money
Teaching kids about money is critical because it’s never been easier to spend it. The days of shattering a piggy bank and counting coins are gone. Without that physical connection to money, it becomes harder to visualize and easier to spend.
Your kids see you ordering food and clothes and toys online. They don’t see you working your butt off for the money to pay for that stuff. You need to help them connect those money dots as soon as possible.
How and when to educate kids on money
Kids mature at different speeds. There’s no magic age when they naturally get interested in money. But once they start learning maths, you can begin to introduce very basic ideas like adding up the cost of stuff, for example. (You probably don’t want them helping with your tax return just yet.)
As your kids grow up, look for opportunities to involve them in some of your family decisions around money. This will send two clear signals:
- Money is not a taboo subject and should be talked about openly.
- You care about them and welcome their ideas on how to spend and save.
These two signals are vital because they are going to reinforce an attitude toward money that can help your children become more successful adults (at least as far as money management goes).
Childhood lessons become adult habits
When they’re young, kids don’t want to learn about the benefits of saving money or the difference between stocks and bonds. They want to have fun and be part of the family. So you can help them learn about money by getting them involved in some basic, everyday decisions around the house.
4 ways to help kids learn about money
1. Budgeting Budgeting is boring unless you get something out of it. Try giving your kids control of 10 per cent of the grocery budget and let them figure out how to stretch it as far as it can go so they can buy more of the stuff they want.
2. Spending Teach your children that there is a limit to how much you can spend in one year after all the basics have been taken care of. Let them help you set priorities for the family. This way they learn all about setting goals without it feeling like math class.
3. Saving Let’s face it, even adults find it really hard to save money, after all the essentials are paid for. Because your kids don’t earn an income, they don’t have any money to save. They have to learn this lesson by watching you or through an allowance. Try creating a shared family savings goal, like a vacation, and track your progress. If your kids receive an allowance, say no to that LEGO set they asked for and help them set a plan to save for it instead.
4. Sharing Why not make charitable giving a family affair and ask your kids to pick a favourite group or organization to help? This doesn’t need to cost a lot but it can plant a lasting appreciation of helping others.
Start small and stay committed
You can be a great role model for your children at every stage of their lives. As you learn more about money and how to plan for the future, you’ll be able to provide good advice when they start their careers, get married, and start thinking about their own financial futures. For now, give yourself a break. You don’t have to understand everything in order to get your kids heading in the right direction.
In fact, when your kids are young, exhaustion is about the only thing you understand for sure. This might not be the time to wade into cryptocurrency day-trading. But there are three financial priorities you can focus on:
Life insurance – It sounds expensive but you will likely get the best possible deal right now while you’re young and in relatively good health.
Education – Talk to your bank about how to set up a simple education savings plan and begin making whatever contributions you can. For example, a Junior Individual Savings Accounts (ISA) is a long-term, tax-free savings accounts for children. You can top it up when your income increases and the money grows tax free. Ask your bank or financial advisor which governments are best for you situation. You and your kids will appreciate the sacrifice in 20 years.
Savings – Time is on your side when you’re a young parent. You have many decades to let the magic of compound interest increase your savings. Anything you can do at this stage of life to bolster your savings and investment plan will be worth it.
Good habits last a lifetime
You can’t anticipate the challenges that lie ahead for you and your children. What you can do is keep the lines of communication open when it comes to money and planning. Keep learning. Keep sharing. And always rely on friends, family and advisors for the support you need to make smart choices about money.