My daughter recently returned home from a trip to Target with her dad carrying two nearly identical stuffed foxes she had purchased. I rolled my eyes and said, “You really needed both of those?”
“Yep!” she chirped before darting up the stairs with her prizes.
I sighed and looked at my husband.
“It’s her money,” he said with a shrug. He’s right. It was her money to spend in whatever frivolous way she wants to.
1. Let your kids spend their own money how they want to
If we were at Target together, I certainly wouldn’t buy my daughter a stuffed fox, let alone two stuffed foxes. But, this was her money, and she can choose how to spend it. She has to prioritize her spending and realize if she buys the stuffies, she won’t have enough for the Skittles she also wants.
2. Give your kids an allowance and opportunities to earn
In order to wrestle with how best to spend their money, kids need to have some. Give your kids an appropriate base allowance but also offer other chances to earn more. We give our kids their age minus four each week. So, my six-year-old receives $2 a week and my 13-year-old gets $9. They get a “raise” on each birthday. They also have the opportunity to earn by completing all of their chores or doing extra tasks for the family.
3. Encourage them to spend, save, and donate
Being a financially savvy adult means balancing short-term desires with long-term needs. It also should mean sharing your wealth with those less fortunate. Children can learn these lessons on a small scale. It’s OK to indulge that urge for a candy bar, but if my son wants to save up for an expensive game, he’ll have to forgo a few candy bars and save. It’s a lesson that will serve your child well when she’s deciding whether to lease an expensive car or save for a down-payment on a house.
Making frivolous decisions can also lead to experiential learning. My kids have had buyer’s remorse at times when their savings dried up and they saw something particularly tempting. They’ve also been let down by something they just “had to have.” These experiences can lead to fruitful discussions about how possessions don’t necessarily bring joy, and if they do, it is often fleeting.
An essential lesson in managing finances is how to share the wealth. It’s never too early to talk to kids about donating to those less fortunate. Encourage your children to support a cause they feel passionate about. My son had a lemonade stand this summer and donated the proceeds to the Epilepsy Foundation. These practices offer opportunities to encourage gratitude for their own blessings as well as a chance to experience the deeper satisfaction of spending money on others rather than themselves.
4. Teach your kids about delaying gratification and compound interest
Saving is hard to sell when a child is faced with a packed toy aisle and $20 burning the proverbial hole in their pocket. But, by demonstrating the wonder of compound interest, kids can learn a math lesson and create strong saving habits.
We used to have four separate bank accounts for our kids, but the fractions of cents they earned weren’t very encouraging and transferring money back and forth became a hassle. We’ve since switched to the RoosterMoney app. It’s a flexible setup that allows you and your kids to track chores and designate money to save and spend. You can release compound interest at your own rate to demonstrate the time value of money.
5. Be a good role model
As in most parenting situations, what you say matters much less than what you do. You can go over and over the importance of saving, but you need to put your money where your mouth is. It’s also important not to make money a topic of shame and fear. Money can be a source of fun, freedom, and generosity, if it is used responsibly. I often discuss with my kids saving for college, paying our mortgage, and how credit cards work. We also demonstrate paying bills on time, designating money for charity, and balancing immediate desires for long-term goals.
Teaching financial responsibility is one of the greatest gifts we can give our children. Greater even than a swollen trust fund. By teaching our children to manage their money now, we set them up for a greater chance at a fulfilling future.
