Saving money for a rainy day? Clipping coupons? Chances are those are money lessons you learned from your parents. Do you have a budget? Most likely, you watched your mom and dad follow a budget while you were growing up. Donate money and other items to charity? You probably didn’t come up with those traits on your own.
There are multiple factors that influence how we spend money, but if an adult has healthy spending habits, it is likely because of what they experienced in childhood. If you’re a careful spender, you’ve probably always been that way and are unlikely to change. If you spend money frivolously because it was modeled for you, it may be a difficult (but not impossible) habit to reverse.
And if you’re a parent, it’s important to realize how influential you actually are in helping your kids develop their future money habits. Parents can’t rely on their kids getting their money lessons from school -- because financial education varies dramatically from state to state. And while most states now include personal finance in their K-12 standards, many states do not require an actual personal finance course. In fact, only 21 states require a personal finance course for high school students. This means that mom and dad are still the No. 1 influence when it comes to your kids’ money habits.
Money and how to handle personal finances is a subject to talk about both early and often. This isn’t a one and done conversation, rather, it’s one that you should have at every stage of your child’s development. Here are a few key money lessons to reinforce to raise kids with healthy values about how to manage money.
One of the most important and simplest things you can do to model healthy money habits for your kids is to involve them in the money decisions you make in your family when it’s possible and appropriate. There are valuable financial lessons even in everyday tasks and decisions. Something as simple as a trip to the grocery store can be an opportunity to discuss the value of meal planning, budgeting and how to comparison shop or check unit prices.
When considering a family vacation, involve the kids in researching affordable options and choosing activities that fit within the family budget so they understand that money only stretches so far. Consider giving older kids a high-level overview of the family budget and expenses so they can get an understanding of why saying yes to every want isn’t possible to keep the family’s financial goals on track.
Protecting your kids from the reality of budgets and bills isn’t going to help them develop the ability to manage their finances in healthy ways in the future -- you don’t have to give them every detail, but it’s important to include them in the big picture.
2. Spend Less Than You Earn
One critical money lesson to teach your kids is the value of living below your means, or spending less than you earn. Having money available to build an emergency fund and managing household budgets and expenses is key to a healthy financial future.
While it’s common for families to use credit cards to pay for purchases and vacations they can’t afford, this is a habit that shouldn’t be modeled for kids. Teaching them that credit cards should only be used for emergencies or for convenience and then paying them off as quickly as possible is the best way to model healthy money habits for the future.
3. Let Kids Manage Money Of Their Own
Giving your kids an allowance can be a really useful tool for helping them learn to manage their own money. Make sure to have clear boundaries around what the allowance covers, what you will cover, and what they can use their money for. Consider having a spending and savings component -- where they are required to save a percentage before they can access the money for spending. Having money to spend helps kids gain real-world experience with budgeting, savings, and goal setting using their income. And it’s also important for parents to resist the urge to “help” their kids by agreeing to cover a purchase your child can’t afford. Acting as a funder for your kid’s wants undermines the healthy habits you are trying to teach them about saving and planning.
For older kids, and those who are able to earn income outside your home (through odd-jobs, babysitting or even part-time work) it’s valuable to help your child open a bank account for savings, and even checking when they are old enough. Many banks now offer youth checking and savings accounts for kids who are under 18 that allows them to manage their own money with the safeguard of the parents having access to all aspects of the account.
The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!
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