Before we dive into how to teach your kids good money habits, let’s discuss why it’s important to teach your kids about money and why they need to develop good money habits.
Teaching kids to be financially savvy is a critical life skill. Money affects quality of life, relationships, marriages, children and what you can do for others. Remember, the more money you have, the more you can give to others and do good in the world!
You may think teaching your kids to be successful with money isn’t easy. And if you aren’t particularly savvy yourself, then it seems even more difficult. But if you keep the following six tips in mind, it can help with this daunting task.
1. Teach your kids to live within their means
This concept entails saving, investing, and not spending money you don’t have. When it comes to savings, a good number to use is twenty five percent. Over the long run, if you can save twenty five percent of what you bring in (spit between pre-retirement and after), you should be in good financial shape.
Another important way to teach your kids to live within their means is by teaching them to track their expenses. They can download an app to help them. And let’s face it, apps are their language so it’s a great way to teach kids how to track expenses.
2. Take advantage of long term savings
If your children are younger, have them put their savings portion of their allowance or gifts into a college savings account. If your children are a little older and have jobs, it’s critical to impress upon them the importance of investing in their 401K plans. If your kids get into the habit of putting money into their 401K plan from an early age, then it becomes habit. It’s like a set it and forget it mentality. If they start putting money toward their 401K plans from the beginning, they won’t miss it.
3. Employ the “pay yourself first” mentality
Treat your savings like a recurring monthly expense. For example, if you have a mortgage, you need to pay it monthly. So, if your mortgage is $1,250 a month, you’ve already budgeted part of your monthly paycheck for that payment. In order to be successful with savings, calculate what your twenty five percent monthly savings amount should be. Then, budget for that amount each month!
4. Model appropriate behavior
In general, you can learn a lot by watching other people. This is especially true with kids. Their brains are like sponges, taking everything in. As parents, we need to be financially savvy. If we’re not, we need to learn. Then, we need to model what financially savvy behavior looks like. For example, if you receive money as a gift for a holiday or birthday, take the opportunity to educate your kids. Show them how much money you received. Calculate the twenty five percent savings with them. Then, bring them with you to the bank or go online and show them what you’re depositing into savings. This will go a long way in helping your kids be successful with money.
5. Give your kids chores
Lastly, it’s important to let your kids practice some of the financial lessons you’re teaching them. Give them chores and pay them for what they accomplish. Then, help them calculate their savings amount. Finally, take their savings and deposit it into their bank account. Periodically, show them how much they’re saving. As the amount grows, it will reinforce this practice.
6. Teach your kids that money is a tool
Money is important for many things. Not only do you need it to live and pay bills, you also want to be able to support things that you may be passionate about. Setting aside enough money to donate to their favorite charity can bring joy and satisfaction that you can do good in the world. Learning to give and share early in life can shape them into the type of adults we all hope they will become.
Just remember, if you have kids, it’s important to teach them to be financially savvy at an early age. Learn more about money habits you can teach your kids in our podcast below.