Our children may not yet know what is a 401(k) or mortgage, but their financial future is already beginning to take shape. Therefore, it is important to teach your kids the wisdom of budgeting, limiting their spending, and paying themselves first early. Fortunately, teaching your kids about saving is quite simple. Studies have shown that by age 3, children can grasp basic money concepts and by age 7, many of their money habits are already set. It is never too early and the sooner you can instill those lessons, you will create a money genius!
Here are three strategies that can help you instill financial wisdom in your children. First, give your child an allowance. The easiest way for your child to learn how money works is for them to have money. You can set up a system for your child to earn an allowance from a list of family chores that are mandatory. Add additional jobs and projects around the house that pay different amounts. Teach your children the connection between work and money so that they have a sense of the value of their time as it relates to spending. The simple fact is that spending money they receive as a gift feels totally different than spending money that they earn.
Second, teach your child how to budget. Budgeting is one of the most essential life skills your child will ever learn. There is no better time for them to start learning the difference between saving and spending than now. Remember, children solidify their spending habits at age 7 and they can grasp basic financial concepts by age 3! Show them how to split the one-dollar bill between saving, giving, and spending and how compound interest will help their savings to grow. If they want to spend more on their favorite toy or video game, teach them how to calculate how long it will take them to save enough to buy the new toy or game and have them to wait. This will take away the sense of instant gratification.
Finally, start saving for yourself. The most important lessons you teach your children are unconscious. They watch everything you do. Remember, more is caught than taught. You cannot continuously enforce saving and spending limits on your children, but splurge on a pair of new shoes or a new purse. They will notice and remember it the next time you tell them to not spend their money. Have you ever tried to tell your child something and they responded with what they saw you do, and you responded with “do as I say and not as I do?” Well, that does not work any longer. Kids are smart and you must be more conscious of your behavior.
We can no longer teach or tell our children to do something that we are not willing to do ourselves. It is seen as hypocritical, and you lose credibility. Therefore, one of the most critical means of teaching children how to save is to establish a savings strategy for yourself and share it with them. When you create and review your monthly budget, do it as a family. When they ask you to buy something that is not in the budget, calmly explain it to them that it is not in the family budget right now and how they may be able to get it later. Show them wise financial decision making, and your children will be far more receptive to learning how money works and apply it for themselves!
The time to start teaching your kids how to save is today regardless of age. The sooner kids discover concepts like the power of compound interest and the time value of money, they can begin to build the foundation for future wealth. If you do not know where to begin, contact us for a free 15 minute consultation at daly.cynthia@canfinancial.biz or www.canfinancial.biz.