Research shows kids form money habits early, based on parental behavior. With little school instruction, parents shoulder this responsibility. Here's how to teach budgeting, saving, and values effectively.
Key Concepts:
- Research tells us that our children’s unconscious notions around money are largely based on our behavior, and that our modeling starts EARLY - much earlier than we think.
- On average, children do not receive instruction about spending habits, savings, or money management from school. This means the lion's share of the responsibility is on parents.
- Parents may avoid talking about money for a variety of reasons, including their own shame, worry or desire to preserve their child’s innocence.
- Children learn about financial literature through observation, instruction, and experience. Skill building around delayed gratification, impulse control, symbolic representation and the ability to plan ahead, are also important.
- Allowance is one way for children to learn about money management. Allowance is different from chores or jobs.
What to Try:
Bring your child to stores!
Let them engage in shopping, and spend their “spend jar” money on a budget. Show them receipts, talk about costs and decision making. For example, set a limit for a gift at a toy store for an upcoming birthday party and let your child try to find a gift within that limit. Involve them in the exchange of money - whether by credit card, Apple Pay, or cold hard cash! Help them to make change, understand the exchange of payment, and update their budget at home (if they spent their own money).
Talk about different types of work, and different amounts earned for it.
Talk through why people choose different jobs (money and other), how different jobs pay different amounts, and require different amounts of investment in education and training. Bring up inequities as you find them, and talk about them.
Explain the difference between something your child WANTS versus NEEDS.
Keep a list on your phone or the fridge, and when your child asks for something, say “is that a want or a need?” and add it to the appropriate list. You can review the “wants'' on the list before a special occasion (like a birthday or holiday).
Talk about spending and saving as central to your values.
What is important to you to spend money on? Education? Vacations? Your home? There is no right or wrong answer, but helping your child to learn what you value can help them understand what you do and don’t spend money on. For example, instead of saying “it’s too expensive,” say something like, “I don’t think this one concert is worth that much money when I would rather spend my money on something that will last us longer and that we can enjoy over and over again.”
Establish an allowance as a way for your child to learn to manage money (this is money that is NOT tied to chores).
Start with the 3 Jar System (Saving Jar, Spending Jar, Giving Jar).
Involve kids in decisions on giving.
Host a family meeting to discuss causes that are meaningful to the entire family and divide up how much each will receive (you can also use beans to signify the entire budget).
Implement a gratitude practice.
Having a gratitude practice is an essential tool against becoming spoiled. Try “toasting” or saying “grace” with gratitude for each day. Or tying gratitude to a specific purchase, like having your child use their new smartphone to take a picture of something they are grateful for everyday, or having your child use their new bike to deliver a meal to a family in need.
Talk about trade-offs.
Help to model decision making related to money. When you engage in larger financial commitments, talk about making other trade offs to accommodate them. Talk about what something is worth compared to something else you give up (is it more hours of fun or more savings long term, or just more important).