Teaching kids about money might seem daunting, but it’s an essential job in order to set up children for financial success. While kids probably won’t be able to understand complex topics like interest and stocks during elementary school, providing an understanding of how money works and good money habits will provide a solid foundation as they grow up. Follow these six tips to start the money conversation early with your young ones.
Having a designated spot to put money is essential in order for kids to start building their savings. Instead of using a piggy bank, set up their savings in a clear jar so they can watch their funds grow. Get them excited to save by challenging them to fill the jar all the way up to the top and offer a prize for when they reach the goal. Another incentive to get them to save is to match whatever they put into the jar. Just like with a 401K matching program, this strategy incentivizes them to put more bills and coins into their jar.
Keep track of spending
Encourage your child to write down everything that they spent their money on each day, and add up the total spending at the end of the week. This exercise helps kids to understand their spending patterns and find the areas where they are spending a lot. For example, if they find out that they spent $10 a week on candy, you can explain how much of their savings that cost them.
Explain wants vs. needs
When kids are young, it’s important to emphasize the difference between wants and needs. If they are begging you to buy a new toy, it’s the perfect time to explain the difference between the items that we want to buy and purchases that we need, such as food. In addition, demonstrate how much work goes into buying something by helping them to calculate how many weeks worth of their allowance it costs to buy that toy.
Lead by example
Just like when you’re trying to enforce any lesson with kids, it’s important to lead by example. When teaching about money management, set a good example by avoiding impulse buys. While you’re out shopping, stick to your shopping to list and try not to buy anything outside of that list. Another tactic to set a good example is to have your own savings jar and save along with your child. This demonstrates how much you value saving and encourages them to keep going. You can create a healthy competition with your kids and even decide to put all of the savings towards a new pool toy or a family vacation.
Share your experiences
As your kids grow up, nothing helps them to understand proper money management more than hearing about your personal finance successes and mistakes. Share specific stories about the times that you made good or bad financial decisions and what you would have done differently. Owning up to the where you went wrong opens your children’s eyes in ways that are more authentic than a lecture.
Give them their own account
Lastly, once they are old enough, give your kids the responsibility of their own savings account. An account is a safe spot for kids and teens to put their the money away while also accruing interest on their savings. If they open an account early, by the time they are heading into college, they’ll be able to make a big contribution to their tuition.
From now until June 1st, Common Trust FCU is offering a promotion on our youth accounts. By opening up a youth account with a $25 deposit you will be entered to win a bike or an Amazon gift card. Visit our youth account promotion page to learn more or stop by the branch to get started.