Building solid financial habits starts young. If you teach your child early on the value of saving money and spending wisely, they’ll be more likely to carry their monetary prudence into adulthood — which can help them reach financial success.
It takes time to instill these habits in children, though, especially since they don’t fully understand the concept of delaying gratification yet. Follow the tips below to overcome this and help them learn the basics of saving.
1. Teach Them Wants vs. Needs
A fundamental part of saving money is distinguishing between things you need to survive and things you want.
Teach your child the difference. Explain to them how food, clothing, and shelter are the most basic needs. Everything beyond that is wants.
As they get older, you can explain how grey areas like vehicles are needs or wants depending on the type of car and your general life circumstances.
2. Pay Them an Allowance For Chores
Allowing your child to earn money through work instills in them the value of working for your pay. Plus, it gives you a chance to teach them how to save and spend properly (covered later).
Getting paid just $20-$30 bucks a week will seem like an excellent payday for your children. They’ll also feel proud that they earned some cash for doing their chores.
3. Help Them Set Goals
Of course, a kid isn’t likely to save their money if they don’t have a concrete reason. Because of this, you should help them set some savings goals.
When your kids are young, these goals might be a new bicycle or video game. You can help them out by breaking down the total price of this new item into smaller portions.
For example, if your kid wants a new bike that costs $100, you could break this down into saving $10 a week, then having them figure out how long it’ll take to save $100.
4. Teach Them the Basics of Long-Term Investing
A lot of people wander into adulthood with little to no grasp on the basics of investing. When your children are preteens or teens, explain to them the basics of long-term investing. Teach them how compounding works and how putting just a little bit away into diversified investments can lead to large amounts of wealth in the future.
5. Let Them Make Mistakes
As a parent, it’s hard to watch your child suffer in any way. However, some forms of suffering — such as making money mistakes — are necessary to teach your children hard lessons.
Let your child make mistakes with their money early on, when the stakes are low. That way, they’ll be much smarter with their money once they’re financially responsible for themselves.
6. Be a Role Model
With all this said, your kids won’t listen to you if you’re not following good savings habits. If you’re lagging on your emergency fund, retirement investments, their college savings, or even if you have credit card debt, work on improving these areas.
Aside from inspiring your kids, you’ll end up in much better financial shape.
