5 Top Tips for Raising Financially Savvy Children
1. Make sure they have money to manage.
Whether it’s birthday money, pocket money, or cash they make doing odd jobs, children have to have money in order to learn how to manage it. And while the words “pocket money” can spark debate among the best of parent friends, consider that your child’s income stream needs to be predictable (just like your monthly salary is), accessible, and age appropriate in order for them to learn budgeting skills.
Once your child has money, help them establish a budget and set some financial goals. Good budgets include planning for immediate spending, short-term saving, long-term saving, and charity. Immediate spending needs no explanation and should resolve any disputes you currently have with your child in the checkout line. Short-term saving might be for larger toys, while long-term saving can be for things like future high school trips and college. And finally, teaching children that a portion of their money should be given away to the charity of their choice is a wonderful life lesson and reinforces their already generous spirits.
2. Model good behaviour, and explain it.
As parents, we know our children are always watching and learning. When they see you spend money in a significant way, talk through how you planned and saved and decided to spend. When you decide NOT to spend money, explain how you have prioritised your needs and wants. This may even cause you to step back and think more carefully about some of your decisions. We hear often from parents who feel they don’t manage their money well and therefore feel they can’t teach their children. Learn together and you will all be better off!
3.. Incentivise.
Everyone loves a bonus. In today’s financial environment where interest rates on savings accounts are negligible, it can be difficult to teach younger children how their money can make money. Consider paying them interest yourself, or matching your child’s savings toward a goal. Everyone wins – they get their toy sooner and you’ve saved half of what you would have spent on the toy in the first place.
4. Give them responsibility.
Most of us would say we didn’t really learn how to budget until there were actual consequences for not doing so. Think about what expenses your child could manage on their own, (always bearing in mind their age or stage of development}. Social expenses like trips with friends or birthday gifts for parties are a good start. You may also try assigning a family budgeting “project” to your child. Ask them to find options for a short family holiday or Friday family fun night within a certain budget: let them shop around and explore the trade-offs inherent in sticking to a budget.
5. Stay strong.
All of us make not-so-smart financial decisions, and your children will too. When they run out of money and aren’t able to buy or do something they want, try not to bail them out. If the circumstances warrant it, you might lend them the money they need and charge them interest – another teachable moment.
