How many lessons on money management did you get at school?
If you were lucky you learned how to balance a checkbook, but most of us learned far more about Pythagoras Theorem than compound interest, or even how it’s a good idea to save a little money for a rainy day.
This has meant that millions of young adults in the US (and all across the world) don’t get a full grasp on what it takes to have control over their finances until their late twenties, early thirties, or even later.
While we can’t get basic personal finance classes introduced into our school curriculums (at least not yet), we can give our children the gift of financial literacy. So what should we be teaching them, and when?
From the Beginning
As soon as your children are old enough to understand what you’re saying, watch your language. No, not cussing, I’m talking about phrases like “we can’t afford it”, and “it’s too expensive”. Often, adults will say things like this to tell children why they can’t buy something at the store, and while it may be true, it’s these early experiences that sow the seeds for your child’s relationship with money for the rest of their lives.
When children are at this age they’re old enough to start having conversations with you about money. The aim at this age is to simply instill the value of money, what it’s used for, the difference between needs and wants, and very early examples of why saving should be a priority.
If you want to, you can assign arbitrary amounts of money to light chores or tasks so they can start understanding the trade of value for money now, or simply offer them a small allowance. If you choose the former, don’t make earning money difficult. Maybe they get a dollar for tidying their toys or doing a drawing at your request.
Allow them to spend or save this money as they please. If they want to buy a small toy now instead of saving for a bigger one, that’s fine, keep it light and fun.
Now you can step up the lessons you were teaching in the previous years. You can tie monetary value to chores around the house, rather than just for fun, and you can give them a weekly allowance now they understand how their weekly schedule repeats.
A transparent jar to put physical cash in is a good idea, as they’ll naturally want to see the jar fill up. Allow them to save up for something specific and help them track their progress.
When they spend money, start guiding them toward the better purchasing decisions, such as waiting for a sale or holding off for a better deal. You should also be aware of your own purchasing decisions and how that is being understood by them.
Now is a great time to take your child to open their first bank account and set their first “major” savings goal. This should be something they want to save for over 6 – 12 months or so. What it is doesn’t matter, it’s the process of saving which counts.
Help them track their saving and let them make minor mistakes if a lesson will be learned from it. Try not to step in to redirect them unless you have to. It’s time for them to learn the value of money, that it can run out, and the power of letting it build up.
Start talking to them frankly about money. It’s at this age that they start to pay more attention to other influences (like peers and celebrities) over you, so let them “peek behind the curtain” and see what running a household costs, without ever putting the burden of that on them.
Continue to influence saving and spending decisions, track it, and start talking about long term savings goals like a car or their college fund.
Show your teenager that having money – e.g. saving it – equates to freedom and that a lack of it does not. Adjust their allowance or earning ability so they can take on more responsibility in buying their own things, especially as they turn 15 and 16. If you can, give them their allowance every two weeks or monthly so they have to learn how to budget.
It’s also a good time to talk about debt and the pros and cons of borrowing from others.
They are now young adults and should be making independent financial decisions, especially as they start to look toward going off to college and managing their own finances. Encourage jobs, entrepreneurial flair, and talk frankly about money. If you’ve done your job right, they’ll be better set up for their financial future than most other adults!
Learning the value of money, to save money, and how to spend money sensibly is incredibly important, and if you can instill great money habits your child will grow up to be a happy, successful, and stable adult. What more could you ask for?
If you’re looking for advice for your own financial future, we’re here to help.