Jun 08, 2017 / Money Tips
Did you know that children form spending habits as young as age 7? When your kids reach adulthood, you will have taught them countless lessons. And certainly among those should be smart money habits. Don’t wait until they leave for college to talk about responsible money management. If you want to raise savvy spenders, savers, and investors, teach your kids smart money habits when they’re young.
1. Let kids make spending decisions
Kids develop better understanding of spending habits, good or bad, when they can practice them firsthand. Rather than simply talking about responsible decision-making, give your kids the chance to try it themselves.
Hitting the neighborhood yard sale is a great way to teach kids smart money habits without breaking the bank. Give your children a firm budget and let them browse the merchandise. This helps them learn how to choose items within budget, assessing how valuable it is to them, and even negotiating a better deal. Step back and avoid the urge to provide too much guidance during the decision-making process. For example, if your son chooses a toy that you know he’ll grow bored with by the end of the week, let him buy it. If after a few days he decides the toy wasn’t that fun, he’ll be inclined to choose more carefully the next time around.
2. Teach banking basics
It’s never too young to learn the basics of banking. Financial pros recommend using a simple piggy bank system as young as age three. Label three jars Spending, Savings, and Sharing and explain their purpose:
The Spending jar is like a checking account. This money is for regular, smaller purchases, such as a weekly trip to the ice cream shop.
The Savings jar is like a savings account. This money is reserved for more expensive purchases (such as a trip to the water park) that will take several “deposits” to earn and enjoy.
The Sharing jar is for money your child wishes to share, such as a charitable cause, the weekly family night fund, or even gifted to a sibling who is a few dollars short.
Each time your kids earn or receive money, help them choose how to distribute the funds among the three jars. Remember, young children tend to understand new concepts better if they can see visual examples, so skip the traditional pink piggy bank and opt for something clear. They’ll be excited to watch their money grow.
As your kids reach an age to save without a visual aid, opening a youth savings account at Utah First Credit Union will help them learn to read bank statements, understand interest rates, and make deposits.
3. Set and reach financial goals
If you’ve ever been on family road trip, you know that the youngest can especially get impatient or cranky when it feels like time isn’t ticking by as quickly as they’d like it to. And just like a road trip, it takes patience to arrive at a financial goal. Help your kids set short-term financial goals such as saving for a mid-priced toy. Make it a point to check the Savings jar together and assess how long it will take to meet the goal.
After your kids have met some goals, up the ante. Ask them to choose a bigger-ticket item to save towards, such as a computer gaming system. Experts recommend teaching kids to shop around for the best deal while their money grows. This helps them stay focused on their goals and teaches them how to be discerning shoppers.
The sooner your kids understand that putting off today’s spending increases tomorrow’s rewards, the more disciplined they’ll be with spending and saving. Practicing smart money habits early paves the way to manage major financial milestones later in life, such as paying for college expenses or buying a home.
4. Show the value of hard work
Financial guru Dave Ramsey recommends paying kids for completing chores rather than doling out weekly spending money. Why? Because money is more valuable when it’s earned.
The key word here is earned. When kids trade their own time and hard work to acquire money, they learn that money is earned, not given. This helps them develop healthy work ethics and greater appreciation for the things they, and your family, purchase. Start your children out with basic chores at age two or three. Even toddlers can easily learn to put their toys away before dinner, help make their beds, or feed a pet. As they grow, adjust their chores and job opportunities to stay age-appropriate—incorporating a few that contribute to the family as a whole.
We’re all about family at Utah First. It’s the core of our community, and it’s where smart money habits start. For more family financial advice, talk to one of our experts at 800-234-0729.