By Kristin Bentley
We all know that managing money is a problem that even adults have. In fact, it’s the number one marital problem that often results in divorce. So, how do we instill in our children the very tools they need to become financially intelligent adults? Especially when they think all they need to do is go to “the machine” to get money. If only it were that easy!
“It’s up to parents to teach their kids smart financial habits,” says Jayne Pearl, coauthor of Kids, Wealth, and Consequences. “We interact with money an average of one to four times a day,” adds Stephanie Beck, owner and founder of Beck Financial Coaching in Atlanta. “Money is a huge part of our lives, so take advantage of those interactions to teach your kids about money.”
Not possessing good money habits has created a major problem in today’s society, where we are daily rewarded with instant gratification.
According to Beck, it is our responsibility as parents to teach them. Otherwise, our kids will learn how to manage money through the media before leaving our homes to attend college, where banks have tents set up on campus and are urging unemployed students to apply for a credit card without caring whether they understand how to use one responsibly or not.
“That’s just absurd to me, giving a kid a credit card before they even have a job,” says Beck. “As parents, we have to teach them to say no and tell them why.”
How exactly do we do this? According to both Pearl and Beck, if we follow these money savvy tips we will raise our kids to be both financially independent and stable.
1. Money doesn’t grow on trees.
When kids see dollar bills pop out of the ATM, they don’t realize that money is a finite resource. Explain that you work to make money, and the bank is just a place that keeps it safe, says Pearl. Beck says not to be afraid to share any details of financial struggles and successes with your kids. “Kids learn a lot by how their parents handle money, right or wrong,” she adds.
2. Work with your budget.
The best way to teach kids how to manage money is by giving them some. Once they save it, they can then buy things on their own. If they blow their allowance on a new toy, and don’t have enough left for a DVD they really want, that’s actually a good thing! “They learn firsthand the consequence of overspending,” says Pearl.
3. Good things come to those who wait.
Teaching kids delayed gratification will help combat society’s “buy now, pay later” mentality. As much as possible, reinforce that waiting pays off! “By doing this you teach them perseverance, the value of a dollar, and how to delay gratification,” Beck says.
4. Don’t spend it as soon as you get it.
Curbing impulse purchases goes hand in hand with teaching delayed gratification. Before you take your child shopping with you, let him watch you create a budget, making a list of what you’re going to buy and the amount you plan to spend. Then compare prices online and clip coupons together, this will teach to plan purchases before even spending.
5. Saving is cool.
So, your daughter wants a new doll that she doesn’t have enough money for? Tell her to save up for it! Beck’s 11-year-old daughter has already been saving for her first car for two years now. “We have made it very clear to the kids that if they want a car, they have to pay for it,” says Beck. “We made a deal with them that we will match whatever they save by the time they reach 16.” Beck and her husband’s goal is to teach their children the importance of saving, delaying gratification, and investing terms. “All of these things will be a part of their lives when they grow up,” she adds.
6. Keep track.
Simply knowing where his money is going is a very big step towards learning money management skills. Have him use a notebook or create a spreadsheet on the computer.
7. Have a wish list.
It is really hard for kids to set priorities, so sit down with them to make a wish list of the things she wants to do with her money. Then help her rank that list by discussing what is important about each one.
8. Make the most of savings.
Introduce your child to ways to save that could earn interest, such as savings bonds and certificates of deposit. Search for a compound interest calculator online and show him how just $1 can grow with interest over time (check out Threejar’s Allowance Calculator, which shows the allowance you got as a kid in today’s dollars). He’ll be amazed!
9. Be a little skeptical!
Of course, you don’t want your kids to think that companies are out to “get them,” but every now and then you should point out the sales tricks manufacturers use. “Healthy skepticism is crucial not only so kids can resist the allure of products on tv, but also because it helps keep them from buying into the messages behind the ads – like if you have the right clothes and toys, you’ll be popular,” says Pearl.
Have your kids donate a percentage of their allowance to a charity of their choice. This will teach them that money can also be used to help those less fortunate, rather than just for buying things.
By following these very simple tips, Beck has set an example to her children of how to be responsible with money. After developing a solid budget plan and sticking to it, she and her husband became debt-free in two years – even their home and vehicles are paid off! At the age of 29, Beck left the corporate finance world to start a business, with her husband as partner, to pursue the job of her dreams.
Now who doesn’t want that for their own child? But the example begins at home; for our kids to become financially-smart, we must be as well.