Money Smart Kids Pt. 2

Help your children to develop the habit of saving money. Most won’t naturally be able to do it. There are many things working against them when it comes to saving. We have to fight our brain’s natural tendencies to become savers. It is something that has to be taught. 

I am focusing specifically today on saving for large purchases. Delayed gratification is not fun! When you are a child it is so much easier to buy a candy bar that they can afford versus saving for the toy that they really want. Let’s not pretend it’s much easier for adults… There are going to be many items in their life that they come across that they want, but that they just can’t afford. Do not teach them that it’s ok to go into debt for those things! (There are exceptions, but this is a rule you can apply pretty broadly.) 

Do not teach your children that it is ok to use a credit card to buy something and then just pay it off. (Again, there are exceptions, but this is a good rule of thumb.) Not everyone has the discipline to pull that off. If you can’t afford to buy something, don’t buy it! Become really good at modeling what you really need versus what you want. There is a large skew in the world today toward thinking that wants are needs. (I’m talking to you Gen Z…)Help your kiddos not to fall into this trap! 

Let your children see you saving for a large purchase. It’s ok to create these opportunities if you don’t have a really big expense/trip in mind. For instance, you might see a pair of shoes at the store that you could just outright buy, but you can also use those as a teaching moment. Show your kids that you are setting aside half the money from this check, and half the money from the next and then when you “have” all the money go and get the shoes. If you are saving for a big family trip open a separate savings account. Have your children see you moving the money to that account. 

Not all large purchases are fun to save for. I have strict rules for my children to value and manage money. I will pay for their college, but I won’t just pay for it. They have to take out loans at the beginning of the semester. For the classes they get A’s and B’s in, I will pay off that loan. Any grade less than that is their responsibility. When it comes to cars, I will match whatever they save. There is not cap on that, but it can also turn out to be a pretty sad car if they only save a couple hundred dollars. You get the idea. They will get some gifts, for a wedding for instance, but in general there is an if-then setup.

This next step is actually pretty fun. You determine how hands on or off you need to be based on the age of your child(ren). Before you try this they should be old enough to understand numbers, and a little bit about money values. Take your kids to the grocery store, and let them buy items off of a list. Get cash from the ATM. The lesson will not be as effective or lasting if you use a card. Make sure that they have enough money to buy what’s on the list, but it shouldn’t be a lot extra. In the Money Minutes we talked about macaroni and cheese, so let’s run with that. Put elbow noodles and cheddar cheese on the list.  Set a budget that will work. I would do $10 for this trip. Take them to get the most expensive items first. Be really helpful and answer all of the questions that they have. There will be a lot of options, and they have to think of this in the context of having enough money for all the items on the list. If they pick one toward the top of the budget that’s ok. Head over to noodles. It doesn’t hurt for them to see that they won’t have enough for both based on the cheese that they chose. Pick noodles and head back to cheese so they can choose something that fits the budget. As your child ages, add complexity by providing less and less feedback. You can let them work as a team once you stop providing as much help. You can also add complexity with rewards card savings, coupons, and sale items. Eventually they will be able to do this on their own. It’s really neat when one day they start complaining about the price of strawberries!

Please reach out if you have any questions, or if you want more info on these items. I’ll have the next steps posted later this week.