Right from the time that your child is able to speak up and ask for a toy in the store, you can start discussions on money. Parents who include their children in financial discussions at home, in the grocery store, and at the bank, are more likely to have children who grown up with healthy spending habits. Here are 5 tips that can help build a healthy understanding of money and how it works.
1. Resist the urge to splurge.
Parents and grandparents are so tempted to shower children with toys and gifts. Encourage grandparents to spoil your child with time and experiences rather than things. These gifts suggest “abundance” as the norm and encourage expectation.
Minimizing the spending can teach them how to appreciate the smaller less frequent surprises that come along and allow them later in life to better understand “less is more”.
2. Don’t be afraid to say no
Adults need to teach children that they can’t always get what they want. Agreeing to child-initiated requests for new stuff can be caused by our desire to give them the things that we didn’t have growing up. Being able to say no and sticking to it can teach patience and minimize future tantrums. Children who get everything they want will often live materialistic lifestyles as adults. Think of the implications that this lesson may have on future credit and debit card use.
3. Needs vs. Wants
Teach your child the difference between needs and wants. Understanding these difference can better help your child sort through advertising messaging and make informed decisions determining what they actually need and what they desire. Teaching these values and how to evaluate both, on a small and large scale, may help turn future impulse purchasing into long-term savings and investments.
4. Be a smart shopper
Before heading to the grocery store have your child sit down and look at flyers. Talk to them about the pricing differences between stores and where you can get the best bang for your buck. Tell them what your budget is and let them take part in creating the shopping list. How much money can you potentially save from choosing one store over the other this month? Also show them how similar research can help them when purchasing larger items. Patience, time and preparation can go a long way and save a lot of money.
5. The four-bank system
Money can be used in four ways: spending, saving, investing and giving. Build a bank with four compartments where you can let your child decide where their allowance should go.
Spending - This compartment would be for a purchase that would happen immediately. If your child really wants to go to the movies this week or needs to buy a gift for an upcoming party.
Saving- This compartment would be used for putting away money for a larger purchase that may take multiple allowances to have enough for like a new bike. Take out your child’s savings each week and have them count what they have so far and determine how much more they need to get what they want.
Investing- This one is harder to teach to younger children but still equally important. It is like savings that grows over time to purchase something like schooling, a car or even a house. Once your child has enough to invest, take them to the bank and explain how the bank will add money to their investment over time. Show them statements and calculate earned interest over time.
Giving- Start by explaining how important it is to give back to your community. Have your child research a charity that interests them and ask help them come up with a reasonable donation goal. Once they have hit that mark, take them to the organization and let them present the cheque or cash. This creates a positive experience and your child will feel so proud to have made a difference in their community.