Full disclosure: I’m not a child psychologist, or development specialist, or even a professional mommy blogger.
What I am, however, is a dad to two great kids who have learned the value and power of financial responsibility through purposeful discussions, personal example, and more than a little patience. Now 12 and 15, I know that the foundation that I’ve put in place will give them the financial independence to go on to live happy, healthy, productive lives. And, really, what more could a parent want?
So when I’m talking with my clients about their goals for themselves and their children, I cannot stress enough the importance of talking to their kids about spending, saving and giving now to help form the healthy money habits that will serve them into young adulthood and beyond.
Like any behavior, the key is to start introducing concepts and actions while your kids are young that gradually get more complex and diverse as they age.
When kids are little, money is a pretty abstract concept. They may know what a dollar is physically or even its basic “if I give you this, you give me that” function, but they don’t have a real grasp on its value. A good way to help them grasp that concept is with the Spend/Save/Give System.
It works like this: any money they acquire through gifts, allowance, what have you is divided up among three jars: your Spend Jar, your Save Jar, and your Give Jar. As you add or withdraw from each jar, that amount is tracked in a ledger.
Your Spend Jar is for, well, spending. You want a candy bar? Dip into the Spend Jar. Movie tickets? Spend Jar. Nail polish – well, you get the point. Not only does it teach the power of money, it teaches about missed opportunities and consequences when there’s no money from which to draw due to unsustainable or impulse spending habits. That’s a really complex concept to explain, but a much simpler one to learn through practice.
Next, you have your Save Jar, which teaches them the value of patience as well as the purchasing power of accumulated wealth. The contents of your Save Jar helps with bigger purchases like a new bicycle, shoes, or a new video game, things that, obviously, aren’t necessities, but can come with a (relatively speaking) luxurious price tag. Help them prioritize purchases and set up savings goals. You can even incentivize the act of saving with incremental rewards or by offering to match contributions (“If you save $X toward a new bicycle, we’ll pay for the rest.”).
And, finally, your Give Jar, whose contents is as much about personal development as it is about financial management. My grandfather was a pastor, so tithing to support our church’s mission was something we learned to do from a young age. Kids can be selfish at times and incredibly altruistic others. Find a cause that connects with your child – whether tithing to your church, supporting a local animal shelter, or just treating a friend – all while teaching the importance and intrinsically rewarding act of giving. The key is to get them involved in the sharing process.
As your kids get older, you can help them build on these concepts with simple things like:
- Opening a savings account to teach them about interest and the role of financial institutions.
- Teaching them to prioritize major purchases by writing out a wish list, deciding what’s important, and apportioning income toward each goal.
- Letting them screw up. The financial landscape of your teen years is a pretty safe environment in which mistakes won’t significantly affect their futures. Kids will be kids. Sometimes they’ll spend without thinking. Let them, but teach them how it affects other goals or opportunities.
- Teaching them to shop smarter. Things like comparison-shopping, couponing and shopping seasonal sales will teach them how to stretch their dollars as well as patience.
- Talking about money. While they don’t need to know exactly how much you make or have in savings, you can start to introduce them to products like mortgages, loans, and credit cards, as well as concepts like retirement goals and credit scores.
Look. I’ve done this for a while – both parenting and banking – and I’ve seen the difference this foundational financial education can make later in life. Like any good habit, all you can do is teach your children about finances early, reinforce as they grow, lead by example, and hope you’ve done enough to help them prosper in adulthood. It’s got to start some time; what better time than now?