The need for a Money 101 lesson for my then kindergarten son became apparent when I told him we couldn’t purchase Pokémon cards (in 1997- can you believe it is back?) because I didn’t have the money and he quickly retorted “but all trips start at the ATM”. With the advent of online and mobile banking, kids rarely witness their parents visiting a branch much anymore. So while teachable moments aren’t always obvious, here are some ideas for today’s parents to “teach your children well”.
Set a good example by being a responsible money manager by paying bills on time and being a conscious spender. Let them see you are also an active saver - put money in a jar while your child is watching and tell them it’s your savings jar. Look for opportunities to talk about money, read aloud books (older classics include titles like The Berenstain Bears: Dollars & Sense and Trouble with Money – or the more recent, Three Cups by Townsley and St. Germain) and play games (Monopoly, Payday or The Game of Life) where the objective is spending money wisely.
Family shopping trips are good opportunities to discuss budgeting, spending and saving. It's easy to give clear examples of "needs" and "wants," using different kinds of foods at a grocery store: milk (for strong bones) is a “need” whereas soft drinks are a “want”.
When purchasing a “want,” it’s also important to teach the value of a purchase. Let’s say your son wants the latest Lego set. Instead of purchasing it at the first toy store you visit, compare prices together - you might find a better value at a Mom-to-Mom sale or resale store or even online.
At a very early age children can learn budgeting by dividing their money into four clear jars labeled: Sharing, Spending, Short-term Saving and Long-term Saving. Ten percent of their money can go in the Sharing jar, 30 percent into the Spending jar, another 30 percent into the Short-term Saving jar and the last 30 percent into the Long-term Saving jar.
Start early and teach your kids how to:
Bring your children to the bank and show them how transactions work. Get the manager to explain how the bank operates, how money generates interest and how an ATM works. Ask the manager for a tour -- be sure to ask to see the vault!
Help your child make the connection that money is earned through work. Even at a young age, you can explain that Mom and Dad work hard at their jobs so their family has money for daily purchases including toys. If you choose to give your kids an allowance, tie it to the successful completion of certain jobs.
To help kids earn extra money, make a list of all the chores that need to get done around the house and put a dollar amount next to each chore. Children can then pick and choose which chores they want to do. This gives your children the freedom to choose their extra-credit chores, the freedom to make some extra cash when needed.
For younger children, you can follow this up with a saving chart once you know what your child wants to save for. Figure out how many weeks it will take and make a stacked box chart and put a sticker in that box once the money from that week’s allowance is set aside.
Learning to budget is a vital skill for teenagers (and adults). If you used the Spending, Saving and Sharing jars described earlier – you’re on your way, but teenagers need practical experience. Your teenage daughter loves to shop and wants to go to Prom, so set a total budget she must adhere to and let her prioritize between necessities and items that are nice to have.
A “savings match” can be a great way to encourage your child to save extra money. Chipping in on a much wanted item can encourage a child to reach their goal.
And now, I’ve saved the best or last. Research shows that kids who save are more likely to do better in school1, go to college2, learn self-control and are psychologically better adjusted with a better outlook on life3. What more could a parent ask for?
Amy Persyn is the Director of Marketing at First State Bank.
1. Stanford Marshmallow Experiment
2. Washington University Center for Social Development
3. SEED Initiative