If you have always felt the need to teach your kids money management skills, but don't feel that you have the right skills to do it, then read on. I was in exactly the same position, but have adopted a few simple principles which have really helped
Money management is something I never really learned as kid, and so when I left home for University and then properly in my first job I was ill prepared for what lay ahead, and as soon as I had a family that lack of money management nous started to rear it's head big-time
As a result of this I have always pledged that I would teach my kids money management skills and even if I say so myself they have all grown up with a sound financial grounding and the basic information and tools to manage their own money effectively.
At times it has been difficult - especially when we ourselves have been going through tough times and their friends all had the latest computer game or smartphone - but in many ways those tough times have been the making of all of us.
After all, during such times difficult money management decisions genuinely have to be made and you do find yourself walking the walk, having to put in place what you are trying to teach
I would also say that this article is written partially in retrospect - there is stuff here that I wish I had done but didn't, but if I had my time again I would do (if that makes any sense at all!)
Anyway, here are 10 tips as to how to teach your kids money management skills - skills which should hopefully stay with them for life.
10 Top Tips For Teaching Your Kids Money Management Skills
It's a bit like starting to learn a language when they are young - the younger they start the more natural it will become and over time talk of money, and the handling of money will become second nature
Indeed, Warren Buffett, one of the world's leading financial management gurus bemoans the fact in this article on CNBC that a significant number of parents don't start talking about the importance of money management until they hit teenage years.
Buffett advocates starting much earlier - even at pre-school level, and I would support that view wholeheartedly
1. Determine Whether Your Kids Are Spenders or Savers
Yet one is definitely a "saver", one is a "spender" and the third is somewhere in the middle
There is no rhyme or reason to it, it's just "how they come"
I have had to take a slightly different approach to the "spender" as opposed to the "saver".
With the spender I have encouraged them to save some of their money on a regular basis.
With the saver I have actually had to encourage them to spend, or at least set goals for what they want to spend their money on and work towards it.
Think about it - you my be really pleased that your child grows up saving all their money. You may well think it is "job done" - my child saves every penny he can.
But does your child know how to spend their money?
Sooner or later they are going to have to spend money on something, and it is part of your job to help them spend sensibly.
You don't want them turning into either a maverick who just wastes and fritters their moey, but equally you don't want them turning into Ebeneezer Scrooge, who will not part with their money even at Christmas and Birthday time
It is all about striking a balance.
Encouraging spenders to save, but just as importantly teaching savers how to spend is all part of their financial education.
2. Give Your Kids Spending Money But Explain What is Expected
We've always given our kids spending money on a monthly basis from the age of about 8 but in doing so we have made it absolutely clear that there are certain jobs/chores that they need to do to earn it.
Don't be afraid of holding it back if you have to if their obligations to you are not met
Clearing up after tea, keeping their room tidy, keeping their shoes clean are all examples of stuff that we expect them to do as a condition of giving them spending money
The key is to make sure your kids know exactly what it is they have to do to earn it.
That way you can also give them the opportunity to earn extra for additional jobs which may need doing...
3. Encourage Saving in Your Kids
Encouraging your kids to start saving early is one of the most valuable things that you can do for them. It will start to instill a discipline and "habit" of saving which will serve them well in later life.
For young kids get them a piggy bank and encourage them to save their money in it - no matter how small amount
For older children open up a bank account or a savings account and actively encourage them to pay into it. Get relatives to pay Christmas or birthday money into it so they can watch it grow
One of the best disciplines you could possibly get your kids into is to save a certain amount of anything coming in - 20% is a good figure
So if they have a job 20% of their earnings go off to savings. If they have birthday money, likewise
This actually then bridges the gap between saving and spending because the other 80% is available for them to spend
4. Teach Your Kids How to Budget
How to budget your money is probably one of the most important life skills you can learn, and one which s so often neglected.
We have a free guide to budgeting your money here when you join our newsletter.
Encourage them with a simple incomings/outgoings table which represents what comes into their world and what goes out of it.
Personally, I would also share with them the family budget because it helps to start to explain the implications of money and what they will have to account for when they are older (assuming you budget of course - if your don't then our budgeting sheet will be even more useful!)
5. Encourage Your Kids to Earn Extra Money
We've always encouraged our kids to earn extra money. When they were young they could do jobs over and above what was agreed for their spending money (such as washing the car, helping clear the garage etc), but it is really when they get to teenage years that they are likely to start earning their own money
Of course this is beneficial to your teenager as it gives them vital life skills such as reliability, teamwork and an exposure to plain hard work.
It also starts to build up their resume or CV with relevant experience which is vital on university, college or future employment applications
It is also beneficial to you, especially if they earn enough to buy their own clothes, video games etc etc as it eases some of the costs of upkeep considerably
There are loads of ways teenagers can earn their own money including
- Car washing
- Lawn Mowing
- Pet Sitting or Walking
- Waiting On
- Till Work
- Delivering Newspapers
Get them out there earning - you won't regret it
6. Do the Shop With Your Kids
One school of thought is that you will end up spending more than you intended as you give in to their demands on "extras" that you hadn't budgeted for, so keep your kids well away from the weekly shop
This is perfectly true and a danger if you are trying to save money
However, when your kids are a little bit older and a bit more "mature" - say around 10 or 11, then take them round the supermarket and explain the choices which you have to make to stay within budget
These may include
- Branded products vs supermarket brands
- Essentials vs non-essentials
- Decisions about buying in bulk to save money over the month
- Using coupons and loyalty cards
- Shopping around for best prices
- Staying within budget
All of this is introducing and teaching good money management habits
One alternative is to do an internet grocery shop, putting products into a "virtual" basket.
One great advantage of this is that you can explain decisions in a less pressured environment, and (because it adds up the basket as you go along), start to make decisions about what you buy and what you don't
7. Explain How Credit Cards and Credit Work
A good time to start teaching children about these concepts is when they are around seven years old. You can begin by talking about how cash and credit cards work. Explain that borrowing money to pay for something is and what we do when we use a credit card.
Also explain that when we purchase by credit, the item purchased is far more expensive than it would have been had we paid for it in cash.
That could be a great starting point to discuss the importance of operating your own household economic unit on a cash basis.
Teach your child the benefits of buying only what can be paid for using the cash at hand. Then explain that credit cards have a role to play in our lives but only serve us well when we use them in a disciplined fashion (see the simple game described below)
8. Play Some Simple Money Management Games
The best way to get kids to start understanding the concepts of money and money management is through play.
It doesn't have to be complicated - a simple "shop" game will suffice to get the message across.
For instance, devise a game which looks at the items which will go towards that evenings dinner. Give them a budget to work within
Let's say you have a budget of $7 or £5 to buy minced beef, tomatoes, onions and pasta for a simple spaghetti bolognaise. You have $7 in your budget and that will buy all the items. However, if you want garlic bread as well then this will push you over budget so the choice is
- Sacrifice one of your other ingredients and stay within budget
- Don't buy the garlic bread and stay within budget
- Buy the garlic using a credit card (money you don't have). This then leads into a more detailed discussion about how much that will cost when interest is added on.
Of course you may be a little wary about introducing the "concept" of credit cards quite so young, but in my experience it is best to acknowledge their existence and explain exactly what they are and how to use them.
Incidentally, this sort of game starts getting them to think about "wants" and "needs". In this instance you need the spaghetti bolognaise but you want the extra garlic bread!
9. Walk the Walk
Don't just talk the talk - you need to walk the walk and practice what you preach.
Apologies for my mixing of metaphors but if you are going to be trying to teach your kids about money and drumming in some good financial principles then you need to demonstrate this by adopting thos exact same principles yourself
So if you don't currently budget then learn to, if you don't watch what you spend then start doing so.
One example of this which really hit home with me recently was that I had started to not open all my financial statements and letters, and started ignoring phonecalls. In my defence (my lord) I sort of knew what was in them and was dealing with them but nevertheless
My 18 year old came back from University one Christmas and had some letters waiting for her of a financial nature, and I was shocked to see she didn't open them. I questioned her as to why she hadn't opened them and the importance of dealing with finances and she immediately came back with
"well Dad, you don't open yours"....
She had me there. Completely
The moral of the story is if you want your kid to adopt good financial and organisational habits you really need to be demonstrating those habits to them
Open your mail, respond to phonecalls. Be seen to be doing the right thing
KIDS NOTICE EVERYTHING!
10. Start Setting Some Financial Goals
Most of what we have talked about so far exists in the "here and now" and day to day management of money. Goal setting is starting to think about what you want to achieve six months, a year, or even ten years down the line
Now I am not saying that you need to go through a whole exercise of SMART goal setting with your kids but just to start getting them focused on what they may want (wants are OK if they are thought through and budgeted for) and more importantly need in the future
This could be a new toy or gadget that they have their eye on which they will need to save for, or when they are a bit older a nice car or a deposit for a house.
Start getting your kids thinking a bit longer term rather than the day to day "what can I buy from the sweet shop with my spending money" and a lot of what we have talked about in this article will fall into place.
Finally, I would really appreciate your comments.
- How have you approached money management with your kids?
- Has this article helped?
- Are there any tips that you could pass on?
Comment below please on "how to teach your kids money management skills"!!