Although the piggy bank is the first thing that springs to mind when we think about teaching kids money management skills, the reality is that these days, the money box should just be the first step in the process.
Teaching kids how to budget
One of the easiest and fastest ways to teach your kids the basics of budgeting is to set up the ‘three jar’ system. When they get their pocket money it gets divided up into three jars – one is for spending, one is for giving away to charity and one is for saving. Basically, you’re setting them up with a mini version of your budgeting system. They get to decide how much to dedicate to each jar and you need to give them the chance to do some extra jobs to earn some additional ‘savings’ income.
Teaching kids to set goals
A great way to start teaching kids about setting goals is to have them save up for something they want to buy. Whether it’s a PSP, a new bike, a computer, an iPod or a new toy, get them to set a goal and start saving toward it. If you want to help them along the way, set up a ‘dollar for dollar’ system, where you’ll match what they save, but let them do the hard work and take responsibility for getting enough cash together to reach their goal. This technique instills a great sense of pride in a kid and also helps to stop some of the nagging that instantly buying them whatever they want can encourage.
Teaching kids to be self-reliant
The second part of teaching your kids to achieve goals is to stop telling them that they can’t have stuff because ‘we can’t afford it’. This mindset will teach kids to simply give up or put things on credit, rather than teaching them the importance of working out how they can afford something. Next time your kids ask you for something that’s beyond the budget, explain that buying it is not an option today and that they need to work out how they could go about being able to earn the cash to buy it. Giving them the chance to work out that you can’t always have everything you want straight away is an important step in creating good money management habits, and if you back it up with helping them to figure out how to earn the money and save until they reach their goal, you’ll be giving them strategies that will last a lifetime.
Teaching kids by being a good role model
We learn the vast majority of our money management habits from our parents. Have a think about what your kids are learning from you on a daily basis. Are they seeing you behave impulsively or responsibly? Are they watching you work toward your own goals or seeing you simply put everything on credit? Are you showing them how to be socially responsible by donating to charitable organisations or doing volunteer work if your budget won’t stretch to cover donations? Are your kids aware of the family’s financial situation or do they think that an endless supply of money just pops out of the ATM whenever you need it?
People often say that their kids are too young to learn about money management, but the truth is that if they can count they’re old enough to start being taught the basics. If you wait until they’re ready to leave home to start teaching them the importance of good money management then chances are it’ll be too late and they’ll end up having to learn their financial lessons the hard way. Give them the best start in life by teaching them simple lessons the easy way, right from the start.