Money Smart Kids

Teaching kids how to effectively manage money is one of the most difficult tasks that parents face. We want them to make better financial decisions than we did, but we often spend more time telling our children what they should do, instead of displaying the right behaviors and allowing them to follow in our footsteps.

It’s important for parents to be intentional about the financial values they demonstrate in front of their children. And although the idea of constantly being on your best (financial) behavior may seem like a daunting task, it really isn’t as challenging as it sounds.

Here are five tips that you can start implementing today to help raise money-smart kids.

Model Good Financial Behavior

As a parent, you are your child’s first role model. And let’s face it: kids seem to enjoy observing (and mimicking) their parents’ every move.

While at times it may feel like both a gift and a curse, you have a wonderful opportunity to influence how your kids think about money simply by your actions.

Think back to when you were growing up. Many of your deeply ingrained philosophies on money — whether good or bad — are likely the result of watching your parents.

And now that you’re the one doing the raising, you must be mindful of the financial lessons that you are demonstrating to your children.

Do you often stress about money? If you have substantial means, do you flaunt your wealth and disparage those who have less? How do you discuss spending decisions with your spouse? Is it a calm discussion or does it often result in an argument?

Your answers to these questions are important because your kids are watching and learning from your actions every step of the way.

Start Early to Develop Financial Savvy

It’s never too early to talk money with your kids. If you have young children, a simple way to get them started is by teaching them how to tell different coins apart. Once they’ve mastered that, give them a piggy bank and help them start saving their coins.

Using a see-through piggy bank may help drive the point home, as they’ll be able to watch their money grow. As they get older and more familiar with the idea of saving money, let them spend money on treats from time to time, buying things both when there are just a few coins in the piggy bank and at other times when it is completely filled.

This will help them understand purchasing power and the idea that a small amount in the bank buys a small treat but a full bank allows them to purchase something much larger.

Teaching Value Is Critical for Money-Smart Kids

We live in a society that places very little value on things that aren’t considered new. Everything from cell phones to televisions and even cars are disposable once a shiny, newer option becomes available.

By teaching your child the value of material and immaterial items, you help establish the framework for a very important lesson about money.

You can show kids that everything has a cost, in terms of actual money spent and more intangible costs like the tradeoffs involved, and most important, time. Children don’t intuitively understand that you work hard to earn the money you spend; they just see the spending side of the process.

Take the time to build out the whole picture, so they understand everything has a value — including time.

Get Them Involved

Getting your kids involved in the household finances is a good way to teach them the basics of budgeting and emphasize the importance of spending wisely.

One place that provides a great teaching opportunity is the grocery store. Start by explaining how important it is to have a list when shopping and perhaps take it a step further by discussing the financial repercussions of deviating from a shopping plan. This will help them understand that walking into the grocery store without a plan likely means unnecessary spending.

If you use coupons, share with your kids which coupons you use and why you don’t use others. This will help them recognize good and bad deals.

Depending on their age, you could even talk to them about how some items may look like bargains on the surface, but once you break down their per unit cost, they’re really not.

While it may initially feel awkward discussing the household finances with your kids, don’t miss the more important lesson here. Without insight into how money flows in and out of the family budget, they might develop misconceptions like thinking that a debit card never runs out of money.

Encourage Delayed Gratification

As humans, we’re innately wired to want things immediately — and our kids are no exception. The difference is, as adults we’ve had years to perfect our ability to delay gratification.

Our kids? Well…not so much.

The ability to delay gratification is one of the best gifts a parent can give their children and is an essential building block for their long-term financial success. Even if your kids are not yet using real money, you can still teach them the importance of delaying gratification.

If you’re at the store and your child finds a toy that catches their eye, don’t just buy it. Instead, suggest that they add it to their birthday or Christmas list. If they receive an allowance, you could even have them buy the toy once they’ve raised enough on their own.

It probably won’t be a popular decision the first few times it happens, but when they’re adults, you can be sure that they’ll be appreciative of the lessons you taught them early in life.

In all likelihood, raising money-smart kids will be a lesson for you both — and will require lots of patience. But, the reward will be children who become financially savvy adults that will pass the torch of financial literacy and smart money management to future generations.