Money management is not something we are born with. If you lay out bills of different denominations for a four-year-old and ask him which he would like to have, he will pick the prettiest bill. He will not pick the largest denomination because, to him, it is all just faces on paper.
But do the same thing with your 15-year-old and you will have a very different story. We learn the value of money and form money scripts during childhood. So, how can we make sure that our children learn basic money management skills from a young age?
So, how can we make sure that our children learn basic money management skills from a young age?
Here are 5 ways to teach basic money management to your children:
1. Model good behavior
Kids are amazing little sponges, who soak up all the information in their surroundings, for better or for worse.
Just ask my oldest brother who stubbed his toe on my crib one day. That is how a four letter word that starts with s and ends with t became my second word.
But it isn’t just what we say that kids learn, they are also absorbing all that they observe around them.
I think all parents have learned this the hard way. We tell our children to eat their vegetables or pick up their toys but don’t model the same behavior.
And our children don’t do what we ask. Worse still, when they get old enough, they call us out. “But you left your sneakers in the living room. Why do I have to pick up if you don’t.”
Our children are paying attention to our money habits, too.
They see when mommy and daddy sit at the table together to plan next month’s budget together.
They hear when we bicker about credit card debt or misspending.
And they especially pay attention when our money habits affect them.
If we buy everything they want, they will always want more. If we yell at them that we can’t afford what they want, they will fear money. But if we are honest and set clear rules with them, we can set them up for a healthy financial future as adults.
2. Give your child a small, clear piggy bank
This tip may sound very specific and a bit odd, but there is a reason for it.
I love piggy banks and the idea of saving money from a very young age. My son got his first piggy bank at his second birthday. His aunts and uncles have him small amounts of money for his birthday, so we put it in a piggy bank.
We told my son that if he continued to save his money all year, he would be able to buy a bike for his third birthday.
But I don’t want just any piggy bank and I especially don’t want a five-gallon water jug as your child’s piggy bank. The piggy bank should be small and clear so the child can SEE her savings and get excited about filling the piggy bank.
How the child “earns” her money is stuff for another blog post, but let me just say that it depends on their age and your beliefs.
My son is young enough that he does not receive an allowance or get paid to do extra chores. So, the deal that we have is that any change that is left lying around the house is his to put in his piggy bank and any money that relatives or others give him goes directly into the piggy bank. Now he is almost three and the piggy bank is so stuffed that I had to sneak out some of the money to be able to fit more into it!
3. Create a clear savings goal
As I mentioned with my son, we gave him a goal along with his piggy bank to save enough for a bicycle. Even if you don’t use a piggy bank, giving your child a savings goal for larger purchases is a great idea.
Savings goals help to teach the value of delayed gratification in a world where nearly everything is expected instantly. We want our food served to us within seconds, the internet to give us what we want in nanoseconds. Money is no different.
We have a few dollars and already know what we are going to spend it on. But, if a child can learn that by saving he can buy something of greater value down the road, he will learn the value of delayed gratification.
When I was 11 years old, I wanted a trampoline. You know, one of the big ones that goes in the back yard. It cost $238 with tax at Sam’s Club.
I saved my money for months to buy that trampoline and headed with my father to Sam’s Club with my one and five dollar bills to buy the trampoline. I was so proud of myself! And I LOVED that trampoline and used it for more than 10 years!
4. Encourage your child to start a business
I am not talking about building the next Microsoft here, although if your kid is a programming whiz, he could! What I mean here is to encourage a healthy entrepreneurial spirit.
If your child wants to put up a lemonade stand in the yard during the summer, get a paper route, or shovel sidewalks in the winter, encourage them! Let them know the responsibility they are taking on and that they have to stick with it for a reasonable period of time, and help them in the process.
Notice I said a HEALTHY entrepreneurial spirit. It is also our jobs to make sure our children aren’t learning poor habits with their entrepreneurial endeavors like overcharging, having a low quality product, or relying too much on mom and dad to do everything.
5. Teach your child to live generously
Humans don’t naturally want to share what we have. Have you ever seen (or been) an embarrassed mother at the park or daycare try to convince her two year old to give up one of the 17 toys that he is playing with so another child can play? Chances are, it didn’t work.
But eventually, most children learn that sharing is one way to have positive social interactions. So, by the time they are four years old, children are showing mom how they gave the crust of their sandwich (which they don’t like anyway) to their younger sibling.
One of the best money lessons you can teach your children is that giving is infinitely better than receiving. Obviously, this assumes that you have something to give, but many of the most generous people I know have the least to give.
When I moved to Guatemala, I saw poverty like I had never seen before. I also saw generosity like I had never seen before. When a young mother in my community passed away in childbirth, the entire community came together and gave food staples and money to the grieving family for the woman’s orphaned son. And in the community where I lived, most people did not make enough to ensure that they had three meals a day. But it didn’t matter. A family was in need and they helped.
Teaching your child to be generous will help in many ways.
First, it teaches her to have a healthy relationship with money. Many people fear money. They fear losing it. They fear not having enough. They fear that someone will try to rob them or swindle them or somehow separate them from their money. But giving generously helps to mitigate that fear.
Second, it teaches her to think beyond herself, see need in others, and try to help.
Third, it humbles her for when she will need to be the recipient of someone else’s generosity, as she most assuredly will.
How can we teach our children to live generously?
Going back to tip number one, we need to model living generously. Our children will learn from us if we are generous without expecting anything in return.
Second, we can set up a system with our children that a portion of any money that they receive (birthdays, holidays, etc.) is set aside to give away to someone else. For example, if my brother gives my son $5 for his birthday, my son will save $3 in his piggy bank and $2 will go in a “give” box. That money can then be used to buy gifts, donate to charity, or used for tithing in church.
Let me know what you think about these tips in the comments below!