There are many ways to teach your children good money sense. You can tell them stories about how you used to earn, save and spend money all those years ago. You can emphasize how important it is to be careful and wise with their money. However, the bottom line is that experience is the best teacher. The key is to have your children learn by doing. Here are five steps you can take right to make them “money-smarter.”
1. Get them interested in money early
When your children are very young show them how to tell different coins apart. Then give them a clear piggy bank they can use to store up their change and see the money they’re accumulating.
Once saving has begun, let children spend money on treats, buying things both when there are just a few coins in the bank and when it is completely filled. This way, they will come to realize that a little bit in the bank buys a small treat but a full bank enables them to purchase something special.
When your children are a little older, try playing games to help them understand the difference between needs and wants. When riding past billboards or watching television, for example, ask them to identify whether each product advertised is a need or a want. Tally their score, and when they have accumulated enough points by guessing 10 or more correct answers, treat them to a want.
2. Make saving a habit
To get children off on the right foot, consider making a house rule that they must save 10% or more of their income, whether the source of that income is earnings from a neighborhood lemonade stand, their weekly allowance or a part-time job. If implemented when your child is beginning to learn about money, your plan should not run into much resistance. However, if you do not set some sort of guidelines, the chances are pretty slim that your child will take the initiative and save on his or her own.
You also might contribute a matching amount every time they reach a certain dollar amount in savings by themselves. Such a proposition sounds just as appealing to a child as it would to you if your boss told you the company would kick in a dollar for every dollar you saved over $10,000.
3. Give regular allowances
Allowances give kids experience with real-life money matters, letting them practice how to save regularly, plan their spending and be self-reliant. Of course, you should determine the amount of allowance you think fits their age and scope of responsibilities.
Some parents feel they do not have to pay allowances because they generously hand out money when their kids need it. But kids who get money from their parents as needed may have less incentive to save than children who receive allowances, even when the total amounts children in each group receive are the same.
4. Help plan a budget
Encourage your children to write down what they buy during the week and how much each item costs. Then write down their weekly incomes. If the two amounts do not match up, they will have to prioritize their needs and wants.
To give younger children practice making tough decisions, allow them one special treat — which they pick out themselves — at the grocery store. Having to face 10 or more aisles knowing they can choose something from only one helps children understand that spending means making choices. Just as you know fixing a leaky roof might mean postponing your Caribbean vacation, your children will realize that opting for an action figure during a store visit means they will not be able to enjoy a candy bar on the way home.
5. Encourage money-earning ventures
To help your children earn money beyond their weekly allowances, suggest that they find creative ways to make it. Encourage them to do special household chores or to seek jobs in the neighborhood such as raking, mowing, pet sitting or shoveling snow.
Many people in your neighborhood — particularly elderly residents — would love to have a person regularly doing things for them that they no longer can, such as taking out the garbage or raking leaves. This is a perfect opportunity for your child to both earn some money and do something for someone in need.
Even though by the teen years many children begin earning their own money by working part-time jobs, continue to encourage that entrepreneurial spirit.
A head start they’ll appreciate later
The money habits your children learn — and witness from you — could certainly carry over into adulthood. The chances are that after you have imparted all of these lessons and their financial successes come, your son or daughter might even turn to you and say, “Thanks. I owe it all to you.”
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Joelle Spear is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at 508.598.1082 or jspear@canbyfinancial.com
This article was written by MFS Fund Distributors. Any statement contained in this article concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. ©2020 MFS Fund Distributors.