There are really only two ways to learn how manage your money; Either you learn from your own experience or from someone else’s. If you have the chance to learn from someone else instead of from your own mistakes, you already have a pretty good head start. Not all of us have had this opportunity but we have all had the chance to gain knowledge by trial and error. If you have children, give them the opportunity to learn from you now know! Here are some tips to get them started on the right foot.
It can be a good idea to start showing your kids the basics at a young age. To do that, they are going to need some money to manage. It doesn’t have to be much, a common practice can be to give an allowance or some money in exchange for chores. At this point, the way you decide to disburse the money depends on your parenting style so we won’t advise in this regard.
For the purpose of giving an example, let’s say you are giving your child $10 a week. Ask them what sort of things they would want to spend this money on. They might have some cheaper expenses like candy or arcade games but they will surely have some more expensive items as well that they’ve seen on TV or online.
Teach them to budget and ask them how much they’d like to put aside each week to save for a larger item they would like. If your child would like to purchase, let’s say a $40 video game (a rare thing nowadays we must admit), you could explain to them that you’ll give them $5 each week and put the other $5 into a “saving account” that you keep aside, and that after 8 weeks, they will be able to purchase the game they want.
To give your child an even better idea, you can separate the spending money and savings in two jars so they can watch it grow and keep track of how much they spend.
Let’s go back to the example of the $40 video game. Grab a few circulars or just do a few quick searched online and sit down with your kid. Do some price comparisons and see if the game available for less anywhere else. Make them aware of the options of buying used and the risks involved. After a bit of searching, if you find out that it can be purchased for $30 elsewhere, your child will probably be thrilled to learn that they can get their game in 6 weeks instead of 8, and even 5 if they don’t mind putting one week’s spending money towards it. That last option of course means a week without spending, which will teach them yet another lesson.
Loans and interest
This might seem like overkill and might not be necessary, at least not until your kids are a bit older, but then again it can never be a bad idea to teach them the consequences and reality of lending. Let’s pursue with our example from the previous section. You have found the game they want for $30, and your child decides that, on the fifth week, they would like to use the $25 in the savings jar and the $5 in the spending jar to buy the game.
A couple days later, your kid is going over the the corner store with some friends but the spending jar is empty! At this point, they come to you and ask you for more. You could of course just tell them that $10 is the weekly allowance and that they will just have to wait. If you are paying them in exchange for chores, perhaps there is another chore you could add for a bit of extra cash.
Another option, if you would like your child to learn a bit about how loans work, would be to lend them a bit of money. For example: You give them a $4 advance. Tell them that next week, when you give them the weekly allowance. you’ll take $2 out of their savings, and $2.50 out of their spending money (50 cents for interest). This will already give them a good idea of the benefits and consequences of lending
Savings and interest
If you are going to teach your child about the negative effects of interest, it can be a good idea to show them the positive side as well. Set an interest amount that you feel comfortable with for that savings jar, let’s say, 20 cents a week per dollar they have in. That will give them a dollar per week for each $5 they decide to keep and there. As much as any kid likes to buy stuff, you might find that they’ll be even more excited to watch that savings jar grow!
These are just a few ideas to help make your kid financially savvy. Get them started early and give the chance to perhaps avoid some mistakes that you would have liked to have been given the opportunity to avoid!