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How To Prep Your Kids On Money Management

As young kids, we were taught to save all our money and put it in the bank. We could use the pocket money we earned from doing chores to save up for something we really wanted.

These days, with interest rates so low, putting money in the bank may not be as great an option, but the fundamentals of being financially savvy remain the same. They can be broken into a few easy to learn categories for your young ones.

The money you save

With currencies moving ever closer to being digital only, it’s more challenging to show young kids how their wealth can accumulate when they save it.

If you are able to, try to use cash with them for as long as you can, so they can add the new money they save to their existing funds and see it growing.

Also, think about how they store their cash. The traditional piggy bank hides the money away and your child may not know at any time how much they have in savings. Later on when they finally open it up, it is a surprise to see how much they’ve got.

You would never go to the bank as an adult to withdraw money with no idea how much you had in your account, so why teach kids that now?

Try using a clear jar so they can see their pile of cash growing in a physical sense and learn how to monitor their wealth.

If you don’t want to use cash, get them an online account and show them on an app how they can add to the total by agreeing to deposit portions of their pocket money there.

When they are older, they can assume control of their bank account and their money management skills will improve without having to get approval (from you) for every transaction.

The money you earn

From the age kids start receiving pocket money, it should never be given, but rather earned. They should think of their place in the household as a right, but any income as a commission for contributing to that household. They may have a set list of jobs for the week they must do in order to earn their basic wage, or you could have monetary values assigned to certain tasks that will help them earn more commission the harder they work. Small jobs could have a gold coin value and bigger jobs could have a $5 note value. This will teach them that money is earned and will make them think twice about parting with it for frivolous reasons.

The money you spend

First, it’s important to lead by example. If your kids see you tapping away with your credit card all day long, they might think lots of spending is no big deal. They need to know that when they spend some money, it’s gone. The only way to get the money back is to earn it all over again.

When they see something they really want, they can use their hard earned chore wages to buy it. If they know that what they are buying cost them two lawn mows or three car washes to earn, they will weigh up how much they really want it.

This should help them avoid impulse spending. But if they do go ahead and by a crappy toy and end up with buyer’s remorse, that will be a good lesson. Stand firm and don’t be tempted to give them the money back if they are upset. It’s much better they learn this lesson with a $15 toy than later in life with bad debt worth thousands of dollars.

If they want something worthwhile but expensive, show them how to save a regular portion of their income for a certain period to get where they need to be. Only when they have accumulated the funds can they make the purchase. Don’t buy them the item first and let them pay you off, because that will give them a taste of the dangerous world of credit cards.

More sophisticated lessons

Interest Explain to them how compound interest works and how much money they can save by paying down high interest debt and investing their money in assets that yield returns.

Budgeting – They should learn how to make money plans while still living at home so you don’t have to bail them once they’ve left the nest.

Giving As they get a bit older, introduce them to new parts of the adult finance world. Encourage them to see the value of giving, by donating to a charity they believe in, or volunteering their time for a worthy cause.

 

Want to equip your kids with the knowledge of basic finances that they will apply throughout their life?

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