Money management for kids can be a tough subject for parents to teach. These 7 tips include 5 things to avoid and 2 things you must do now.
Avoid These When Teaching Money Management for Kids
- 🛒 Avoid impulse buying. Set the example and demonstrate to your kids that you have self-discipline and can easily differentiate between needs and wants.
- 🚧 Avoid debt. Debt is easy to get into and difficult to exit. One purchase made without a plan and thinking through the consequences can result in years of money stress. An example is buying a new SUV with a massive payment on a 6-year loan.
- 💳 Avoid always swiping the card. When kids are young, they need to understand that your money is finite. If you load a basket of goods on the conveyor, swipe your credit card, and go home with a trunkload of stuff – then kids do not make the connection that you have just spent part of what you have available for the month. Use cash at least occasionally so they can understand the relationship between the card and your bank account [see related post, “Avoid This Financial Mistake When Teaching Kids About Spending Money“].
- 👷♀️👷♂️ Avoid giving kids an allowance. Kids should do 3 kinds of chores. The first is basic chores that are required of each family member as part of the household. Then second is chores that they can do to earn some money for small purchases such as snacks or entertainment. The third is larger chores to earn extra money to save for a larger purchase. Kids need to learn that money comes from work. If you just give them an allowance for being your kid, then they find it hard to make the connection.
- 😠😓 Avoid having a bad attitude about money. If you have a bad attitude about money and show how it stresses you, then your kids will inherit that attitude. If you teach them good money habits such as budgeting, avoiding debt, and making thoughtful purchases, then they will have a good attitude about money and will be less likely to grow up expecting that money is a source of stress.
- 🧮 Use a budget. All good personal finance decisions start with a budget. If you don’t have a budget, then you’ll most likely spend more than you make and rely on credit to make up the difference. Kids can start with a basic budget of three envelopes labeled save, spend, and give.
- 💰 Teach kids to invest early. After kids master a simple budget using saving, spending and giving envelopes – it’s time for them to start investing. Since your kids will probably rely on 401ks and IRAs instead of pensions, they need to understand the basics of stocks and mutual funds. If you get them off to a good start, then the power of compound interest and the habit of regular investing can put them on the path to becoming millionaires in their early 50s! [see related post, “Have Kids Invest Early, It’s More Important Than Ever“]