Although the piggy bank is the first thing that comes to mind when we think about teaching kids money management skills, the reality is that these days, the piggy bank should only be the first step in the process.
Teach kids to budget
One of the quickest and easiest ways to teach your kids the basics of budgeting is to set up the “three jars” system. When they receive their pocket money, it is divided into three jars: one to spend, one to donate to charity, and one to save. You are basically setting them up with a mini version of your budget system. They decide how much to put into each jar, and you need to give them a chance to do some extra work for some additional “savings” income.
Teach children to set goals
A great way to start teaching kids to set goals is to get them to save for something they want to buy. Whether it’s a PSP, a new bike, a computer, an iPod, or a new toy, get them to set a goal and start saving to reach it. If you want to help them along the way, set up a ‘dollar-for-dollar’ system, where you will match what they save, but let them do the hard work and take responsibility for raising enough cash to reach their goal. This technique instills a great sense of pride in a child and also helps stop some of the annoyance they can encourage by instantly buying them whatever they want.
Teach children to be self-reliant
The second part of teaching your kids to achieve goals is to stop telling them they can’t have things because ‘we can’t afford them’. This mindset will teach kids to just give up or put things on credit, rather than teaching them the importance of figuring out how they can afford something. The next time your children ask you for something beyond the budget, explain that buying it is not an option today and that they need to figure out how they could earn the cash to buy it. Giving them a chance to realize that you can’t always have everything you want right away is an important step in creating good money management habits, and if you support it by helping them figure out how to earn the money and save until they reach their goal, you will give them strategies that will last a lifetime.
Teach children by being a good role model
We learn the vast majority of our money management habits from our parents. Think about what your children learn from you every day. Are they seeing you behave impulsively or responsibly? Are they watching you work towards your own goals or are they just giving you all the credit? Are you showing them how to be socially responsible by donating to charities or volunteering if your budget is not enough to cover donations? Are your children aware of the financial situation of the family or do they think that an endless supply of money just leaves the ATM when you need it?
People often say that their children are too young to learn money management, but the truth is that if they can count, they are old enough to start learning the basics. If you wait until they’re ready to leave home to start teaching them the importance of good money management, it’s probably too late and they end up having to learn their financial lessons the hard way. Give them the best start in life by teaching them simple lessons the easy way, right from the start.
