Managing money is a skill you can teach kids at a very young age. Instilling some good money habits early could prevent your kids from joining the masses stuck in a dangerous debt cycle or on the verge of financial disaster. Being a good role model is a part of the process, and there are several things you can do to make sure your kids are hardwired to manage their money effectively through every stage of life.
Here are five essential money lessons for kids to learn at any age:
#1: Making smart spending decisions
You can set a good example for kids by showing them how you make an effort to shop around, compare prices, and delay gratification so that you are buying things you actually need. Educating kids about how to make smart spending decisions will help them recognize the difference between buying something after seeing an advertisement for it or hearing about it from a friend, versus seeking out a good deal based on a real need.
#2: Setting savings goals
One of the essential money lessons kids need to learn at an early age is the importance of saving a portion of their income and having realistic savings goals. Setting short-term and long-term savings goals will help kids develop the skill of forecasting with their finances and may even discourage impulse spending. Encourage kids to write down their goals and review them together regularly to make it a habit. Check out these tips to get kids started saving.
#3: Saving money for the future
In addition to saving money for things they want, kids need to learn the value of saving money for their future and recognize the importance of putting money into a ‘no touch’ account where they can keep earning compound interest on the balance. You can demonstrate this by setting up a starter account for your kids and tracking the balance over the course of a few months so they can see how their account grows. Check out these online bank accounts that make saving fun.
#4: Working with a budget
Creating a budget may not be high on your to-do list but it’s a money management tool that everyone needs. Teaching kids the importance of budgeting and working with some type of spending plan can help them understand how to manage their money. Kids earning an allowance can put together a spreadsheet or chart with a running balance and list their ‘expenses’ to get a taste of the budgeting process. Older kids may fare well with a budgeting app.
#5: Living within your means
One of the best things you can do to show your kids how to live within their means is to spend with cash — or a debit card — whenever possible. Buying what you can afford and refraining from using credit cards just to get by will help kids understand what it really takes to live within their means.
How do you help kids learn smart money habits? We’d love to hear your thoughts the comments below.