Here are five actionable tips to start your child’s financial education early and strong:
1. Open a Bank Account
Helping your child open their first bank account is an exciting event for a child. It affords you as the parent an opportunity to initiate money conversations, help them learn how the banking system works and perhaps more importantly—the power of saving.
As an example, my local credit union does a great job with the super savers program. Kids get stamps each time they make a deposit and after collecting five stamps they earn a prize. This simple exercise encourages them to save while also teaching them about delaying gratification (not every visit ends in a prize).
2. Give Them the Opportunity to Earn Money
Show your child the value of hard work and a dollar by rewarding them with an allowance when they complete the tasks you assign to them. Your kid’s financial education is certain to become much more personal once they earn their own money. Like with most good habits, you need to start somewhere, even if it’s just a dollar a week.
3. Hold Them Accountable
Hold your young child accountable for good money habits. You can do this by showing them how their behaviors impact their ability to earn and save money. For instance, if they do not complete their chores that earn them an allowance, then they do not receive their allowance. This teaches them that follow-through and work earns money. Another way you can hold them accountable is by helping them set money goals like saving so many dollars for that toy they really want. If they don’t save the money, they don’t get the toy.
4. Make Them Prioritize Their Money
After your child earns his or her own money, it’s critical that you step in and show them how to make smart money decisions. You can create envelopes or folders labeled, “Tithe/Giving,” “Savings” and “Spending.” Your money categories can be whatever you want them to be, but the point is to get your kids to establish smart money habits as early as possible. These are the types of habits that will benefit them their entire life.
As an example, I personally make my children put half of any birthday or holiday money into their savings account and allow them to spend the other half. A friend I know has his children save one-third, donate one-third, and spend one-third. It is completely up to you how you want to teach them to prioritize.
5. Let Them Make Purchasing Decisions
Once they have put money towards the categories you determine to help them prioritize their cash, let them spend the rest as they want with some gentle guidance. As they spend their money, help them understand their purchasing power, but don’t tell them what they can and can’t do with it (this has personally been difficult as my kids continue to pour money into buying Shopkins). Ultimately, they need to make a few mistakes so they can learn the valuable lesson that if they waited a few more weeks they could have afforded to buy what they really wanted.
Continue talking to your children about money and they will slowly but surely obtain a much better grasp on how much things cost and how they want to spend their money.