The top five money habits you need to teach your children
It’s never too early to teach your children how to have a healthy relationship with money. Here are the top five habits you want to instil in them.
According to Nerdwallet’s 2020 American Household Credit Card Debt Study, while credit card debt balances have dropped over the previous year, the overall household debt was higher. Financial experts claim that the habit of Americans of spending more money than they make started early.
The earlier your child’s financial education process begins, the better it is. While many parents teach their children the importance of saving before their first job, evidence suggests that it may be too late to instill healthy financial habits by then. A University of Cambridge study reveals that a person’s approach to money is set by age 7.
Fortunately, parents now have access to debit cards for teens and other smart and innovative financial tools that can teach children how to manage their money better at an early age. There are also apps that are designed to make investing for kids easy and fun.
Raising financially-smart kids – five money habits they need to learn
Ideally, teaching your children healthy and smart financial habits should begin early. This is crucial if you want your kids to develop a robust financial foundation once they become young adults. If you want to raise financially-smart kids, below are five money habits you need to teach them:
Habit 1) Get them into the habit of saving for things they want to buy
Saving money is considered the cornerstone of healthy personal finance. However, it is something many people struggle with. As soon as your kids are old enough to want books, toys, and other entertainment items, you need to teach them how to save for the things they want to buy.
Giving your kids an allowance would be a good way to teach them how to make smart financial choices. For instance, if they want to buy a toy that costs $50 and get a $5 allowance weekly, give them an option to either buy something else during the week or the toy they want two months from now.
You can also use their allowance to teach your kids how to save. One way to do this will be to pay interest if they save a part of their allowance. If they already have a bank account, you can also give $1 for every $5 they put in their savings accounts. You can also offer a higher rate to help them better appreciate the value of saving.
Habit 2) Get them into the habit of working hard for their money
The sooner your child realizes early in life that money is something they can earn through hard work and not something freely given to them, the better. You may be tempted to bestow everything their heart desires upon them but refrain from doing so. This will help your children realize that nothing comes for free.
If you want to give your kids some money, it is ideal to tie it to the successful completion of age-appropriate chores. Young kids can help with simple chores like setting the table, while older kids can do jobs like mowing the lawn. So work out what you can delegate to them and get them sharing the household burden while earning pocket money!
Habit 3) Get them into the habit of saving for the long term
One great way to teach kids how to save for the long term is to use the rule of thirds. When your kids get money for their birthday or allowance, have them put a third into a long-term savings account. You can also teach them how to save money for bigger goals like a new bike or a trip to Disneyland.
Habit 4) Get them into the habit of comparing quality, features, and price
Take your children shopping with you to teach them to compare prices and learn how to make better purchases. For instance, you can show them shirts of different prices and explain why they are priced differently.
You can also take them grocery shopping and show them why some food items have different prices even if they are the same. As a general rule of thumb, it would be good to teach them about comparison shopping while they are young so it becomes automatic as they get older and can help them make better purchase decisions.
Habit 5) Get them into the habit of making decisions and learning from their mistakes
If your kids have saved up enough money for something you know they would regret later, let them purchase it so they can learn from their mistakes. Eventually, they will remember spending their money on something that’s not worth it, and they will remember the painful lesson.
From there, they would learn how to make better purchase decisions. If anything, it is much better for them to learn the consequences of not managing their money early rather than later on in life when the stakes are higher.
Help your children grow into financially responsible adults
Teaching your kids smart money habits early can help ensure they become financially responsible adults. Giving them financial building blocks early can also help them learn complex and important financial lessons as they grow. It is one of the best things you can do for them as parents.
Samantha Green is the Content Marketing Strategist for the MCA award-winning app, BusyKid, the first and only chore and allowance platform where kids can earn, save, share, spend, and invest their allowance.
Photo by Annie Spratt