Just as with a broad range of other important life skills, the lessons children learn about finances at a young age can carry a lot of weight, often even sticking with them and carrying over into adulthood. (In fact, according to research, many of our money habits are established as early as age 7.) And by teaching your kids good financial habits early on, you can start them on the right path toward someday becoming a financially responsible adult.
To get your children off on the right foot when it comes to their spending and saving habits, consider these 10 effective ways to teach kids of all ages to be good with money:
PRESCHOOLERS AND KINDERGARTENERS
- Put savings in sight — While a piggy bank provides a great way for kids to learn the value of saving and the rewards it can deliver, typical piggy banks keep their savings hidden until the funds are taken out. But by using a clear jar for socking away their coins and bills, your kids can see their money grow — helping them better visualize the power of saving. Last week, they may have had six dollar bills and four quarters in their savings jar. But after getting that cash birthday gift and allotting some to savings, they now have four more dollar bills and four more quarters to add to the mix — and the amount of money in the jar is growing before their eyes!
- Set solid examples — Kids are constantly observing their parents’ behavior, which sets early standards for what youngsters conceive as normal and healthy. And when parents are regularly making non-critical, beyond-the-budget purchases with a credit card, sooner or later, their kids will notice. Alternatively, they’ll also notice when Mom and Dad take a pass on unwise discretionary spending so that they can instead save up for that new car, those needed home improvements or that big vacation they’ve been eyeing. Be sure to set good examples for your kids when it comes to spending and saving — not only will it help set them up for future financial success, it will also improve the family’s finances at the same time!
- Get them actively engaged in their spending — Money can be something of an abstract concept to younger kids, who might not yet fully grasp what it means when they’re told that the toy they’ve been asking for costs $10. But by having them pull the needed cash out of their savings jar, carry it with them to the toy store and actually hand it over to the cashier themselves at checkout, they’ll get a firsthand experience of how spending works. Further, when they see the money leave their savings jar and not come back, they’ll gain a stronger realization that things cost money and gain a better understanding of what the price means.
ELEMENTARY AND MIDDLE SCHOOLERS
- Consider adding an (earned) allowance — Giving your children an allowance offers them a hands-on opportunity to handle, spend and save small amounts of their own money. And by tying the allowance to the completion of chores, parents can start teaching their kids that money is earned rather than just given away, in addition to conveying the power and rewards of hard work.One side note here:While parents can advise their kids on the best ways to spend their money, it’s also important to let them make their own money mistakes. This can lead to valuable lessons learned early with small sums of cash — and hopefully prevent the need to learn about the consequences of irresponsible spending later, likely with much larger sums of money.
- Clearly convey the “opportunity cost” concept — Speaking of valuable lessons learned, teach your kids early on that spending their money on one thing they want will limit or even negate their ability to purchase other things they want — a balance of monetary decisions and outcomes known as “opportunity cost.” Once you’ve conveyed the concept, though, be sure to let them make their own choices. Wasting money on that cheap plastic toy that breaks the next day or the candy bar that’s gone in an instant can (especially with a little reminding from Mom and Dad) help hammer home the importance of being patient with purchases and saving their money for better options down the road.
- Limit impulse buys — Most parents who have taken their kids shopping before know how frequently the “Can we get this?” and “Can we get that?” questions get asked by children at this age. And while a treat here and there — especially when given as a reward for good behavior — is perfectly understandable, it’s also important to fairly regularly say no to these requests. Instead, give the kid the option to use his or her own money for such purchases. And while doing so, try to express the importance of carefully considering larger purchases — and avoiding the urge to make often-unwise impulse buys.
TEENAGERS AND YOUNG ADULTS
- Consider a personal bank account — Once kids reach the teenage years, it’s likely time to retire the piggy bank for a real bank account. If your teen doesn’t have one already, consider opening a savings account that allows him or her to put money in a safe place for saving. (And be sure to point out the value of the saved funds earning interest while they’re in the bank rather than just sitting elsewhere making none.) And especially if your teen has a job, a checking account might be worth considering too, as it can help teach real-world financial responsibilities like making check deposits and balancing a checkbook.
- Convey the potential dangers of credit cards — Especially if your child is nearing age 18, a flood of credit card offers is likely in his or her near future, especially if he or she is headed off to college. Make sure your teen is well aware of the serious pitfalls that runaway credit card spending can have, including the high price that the interest on such charges can deliver. For teens who seem to be mature enough and financially responsible enough to have one, getting them a low-limit credit card can provide a way to access emergency funds when needed, as well as help teach your child the importance of paying off his or her credit cards in full each billing cycle if possible.
- Preach the power of compound interest — When it comes to maximizing savings, time and compound interest are among the most powerful tools investors can have on their side. And at this age, your budding teen investor should have plenty of time to work with. Sit down with your child and discuss the positive impacts that compound interest can have on his or her savings, and be sure to emphasize the benefits of starting the saving process for retirement, large purchases, etc. as early as possible. To help hammer the message home, show your child charts exhibiting the growth potential that compound interest can present over time.
- Pursue on-the-job experience — There may be no better way for teens and young adults to experience the value of hard work and savings than to get a job of their own, even if only during their free time such as over the summer or on weekends. So, if your child at this age is looking for ways to make money, do what you can to help him or her find a job. And to foster an entrepreneurial spirit, parents can actively encourage their kids to come up with their own ways to make money — a pursuit that’s made a bit easier in the modern era with the earning opportunities, remote and otherwise, presented by the internet.
At The Southern Bank, we pride ourselves on offering friendly, personalized service to all of our customers — and that includes providing guidance when you have questions about any of our banking services. To learn more about our Personal Banking services ranging from Personal Checking and Personal Loans to Savings & Money Market, Certificates of Deposit (CDs), Mortgages and more, check out the Personal Banking page on our website or visit one of our local branches for friendly, in-person service with a smile.