You can help your kids become financially independent by teaching, talking and showing them how to be money smart from a young age. If you communicate, educate and demonstrate good money habits, ideally your children will learn to practice them once they graduate into adulthood.
You can start as early as preschool by giving them three jars—one for saving, one for spending, and one for sharing.
Whenever your child receives money, as a birthday present, other gift, or allowance, divide the money equally into the three jars. The spending jar can be for candy or other small purchases. The saving jar can be for costlier items requiring longer-term saving. The sharing jar can be for charitable causes.
Here are your next money-wise steps as your children grow and mature:
1
Communicate
Studies show that parents play the largest role in teaching kids about money. You can start when they’re fairly young. Be open and honest about money, including your finances, sharing what’s age appropriate as they develop.
● Involve your kids in everyday comparison shopping. As you evaluate the relative costs and value of goods when shopping, engage them in conversation. Share your thoughts and ask their opinion.
● Teach them about trade-offs. For example, if you’re planning a big family vacation, you might have to cut back on other expenses, like dining out. If so, explain this. Introduce the idea of limitations and budgeting.
● Share stories from your past. Talking about your early financial stories or about your parents’ childhood, especially if you or they grew up in lean times, may be helpful. Teach them to not take things for granted. This can be a lesson in values and gratitude as well as handling money.
As they get older, your children will be able to grasp more complex topics. As they reach their teens, talk about the cost of college tuition and the value of getting a degree, what you’re willing to pay towards it, and what you expect of them.
By their late teens, let your kids know how important it is to save for retirement, and even share with them how you’re doing on your own savings goals. Show how you incorporate retirement saving into your budgeting.
2
Educate
Your children will learn financial responsibility by making their own money decisions, so give them opportunities to use their own money.
● Give your school-age child an allowance. Should kids be paid for chores? That’s up for debate, but why not set up a two-tiered system? Kids can receive a base allowance and are expected to do basic chores, such as cleaning their room or helping with the kitchen cleanup. But the two aren’t tied. In addition, they can earn bonus money for doing extra chores, such as washing or vacuuming your car.
● Open a bank account for your child, and teach them about basic banking products. For instance, children can earn higher rates with a certificate of deposit, but they’ll need to wait a specified period before touching their money. If they want or need easier access, a savings account will provide that, but it will pay lower interest rates. A high yield savings account can strike a good balance.
● Match their savings. One powerful incentive is to pledge that whatever your children save during the year you’ll match dollar for dollar at year-end. If you have more than one child, you could spark a saving competition!
3
Demonstrate
Forget all the talk if you’re not walking the walk. The wisest money lessons mean nothing if you’re racking up a lot of debt or not saving your own money. Show your kids the value of being financially responsible through your good example. Pay your bills on time. Live within your means. Save diligently for your retirement. What your kids see they’re likely to repeat.
4
Watch Them Graduate
Share these financial life lessons with your kids, and they’re much more likely to be financially savvy and independent once they graduate from school. Be clear about your expectations and let them know your limits. Teach your children to be smart financial consumers and they'll reap the dividends for life.
Allan Kunigis is a financial freelance writer based in Shelburne, VT. He has written about personal finance for more than two decades.
Read next: Better Money Talks with Your Child
- https://www.kiplinger.com/article/saving/T065-C032-S014-how-to-raise-money-smart-kids.html
- https://www.kiplinger.com/slideshow/saving/T065-S002-rules-for-raising-money-smart-kids/index.html
- https://www.forbes.com/sites/laurashin/2013/10/15/the-5-most-important-money-lessons-to-teach-your-kids/#45b71b1e6826
- http://business.time.com/2013/05/03/4-easy-steps-to-raising-money-smart-kids/