Financial Education for Kids
You’re at the store. Your third grader sees an expensive toy that he REALLY wants. He begs you to buy it for him. You tell him you don’t have the money. He points out that you have your checkbook. How do you help your child understand the value of money, the way to spend money wisely, and the necessity of savings?
- Lead by example. Maintain a monthly budget. Spend your money wisely. Save at least 10% of every pay check. Discuss family finances in front of your kids . . . making sure that they understand that this information is not to be shared with everybody.
- Give each of your kids two piggy banks. Encourage them to put 10% of each week’s allowance (and any other income your kids may have) in the piggy banks. The money in one piggy bank will be accumulated and used for some “major” purchase by your kids. The money in the other piggy bank will be saved for emergencies and/or retirement.
- Praise your kids for every penny saved.
- For the “major” purchase savings, help your kids determine how close they are to saving all the money that they need for their intended purchase. For the emergency and/or retirement savings, speak with your kids about what emergencies can happen, how savings can help, what retirement they would like to have, and how they need to fund that retirement lifestyle. (While these topics may sound too advanced for most grade-schoolers, it is wise to lay the foundation with your kids as early as possible. By speaking with your kids about these topics early and often, your kids will come to understand financial savvy earlier and more thoroughly than kids whose parents do not have such conversations with them.)
- Decide what purchases are your responsibility and what purchases are the responsibility of your kids. For example, perhaps you will not buy candy and sugary foods for your kids. If your kids want these snacks, they will use their allowance to buy these treats. Also, you will buy your kids toys on gift-giving occasions. If your kids want toys and cannot wait for a gift-giving occasion to have the toys, then they themselves must purchase the toys they want.
- When your kids want to buy something that they don’t have the money to pay for, don’t sweep in and buy it for them. Instead, help them understand the sense of deprivation that can come from spending all their money on little purchases (i.e., candy) and not saving appropriately for the “major” purchases (i.e., the remote control race car).
Encourage your babysitter to follow these simple steps as well, you will set the stage for a fiscally sound adulthood for each of your kids.