Dyan Eybergen is a Registered Nurse/Behavioural Health Consultant and certified Parent Coach from the Academy of Parent Coaching International. Dyan provides parenting education on topics related to raising emotionally healthy children. She is an award winning author of the parenting book "Out of the Mouths of Babes: Parenting from a Child's Perspective."
Being good at money management is arguably one of the most important skills a person can have. We need cold hard cash to survive; yet surprisingly, schools don’t teach children financial literacy. As adults, many of us learned to budget through trial and error and, more often than not, made costly mistakes.
Establishing healthy money management skills early on is crucial to building a foundation of wealth and security for one’s future. To empower financial prowess in children, parents need to take advantage of everyday teachable moments. If you’re a parent, here are 5 ways to teach your children about saving money.
1. Teach the concept of interest rates
Help your kids to save the money they get from birthdays, allowance, and that first job and take them to a bank to open a savings account that will earn them interest. Compound interest can provide a great source of motivation for children if they understand that their money will grow over time as long as they don’t touch it. A great example of compound interest is to show how doubling a penny once every day for one month will generate 10 million dollars!
In contrast, teach your children that credit is not actual money and that the interest charged on credit cards is about 19% on average. When they don’t pay off their credit card at the end of the month, they’re paying that interest on every purchase made.
2. Explore the importance of savvy spending
Get in the habit of asking, “is this a need or a want?”. We live in a society of instant gratification. Introduce the idea of delaying gratification to reap a more meaningful reward. Knowing how hard we have worked to earn something is always more satisfying than buying on impulse what we can’t afford, or don’t need.
When it’s their money, it’s important to leave spending choices up to your kids. They can learn for themselves that spending $5 today on ice cream may not leave them enough money at the end of the week for a movie with friends. These are impactful lessons that encourage smarter spending in the future.
3. Give an allowance
Children shouldn’t be paid for everyday chores — create an “other chores” jar for out of the ordinary tasks that can be done to earn some extra money. Things like cleaning baseboards, car detailing, or spring window cleaning that you might “hire out” to get done. Offer your kid a chance at the job and they’ll learn about truly earning their money.
The only goal of giving an allowance is to teach financial responsibility. Encourage children to negotiate an allowance with you. Ask them to pitch a proposal for how much money they think they require in a week/month. Make certain they understand the money you agree upon for their allowance is for extracurricular activities and that it’s their responsibility to budget and save up for big-ticket items such as a new toy, a concert ticket, or trendy clothing that isn’t essential.
4. Introduce long-term saving now
People who are financially secure engage in successful habits of controlling their expenses in order to save and grow their wealth for their future. We need to start cultivating these healthy money habits for our children as soon as possible.
For example, a 15-year-old child gets his/her first summer job and manages to save $1,000 this summer. That single investment will grow to roughly $128,000 in 50 years! Imagine if that 15-year-old saved $1,000 from every summer job for the next 10 years! (This, of course, does not take into consideration inflation rates of about 2% a year.)
5. Give back
It’s important that children realize there are those who are less fortunate and need help from others to survive. A portion of your child’s allowance or earnings from a part-time job should be given to a charity of their choice.
If your child isn’t yet earning money, you could encourage donating old clothes or putting together food baskets for impoverished families. You could even make birthdays or Christmas a time for charity by having your children select one gift from their collection and donating it to organizations that help kids in need.
It’s never too early to demonstrate the value of money to your children. The idea is to look for everyday opportunities to reinforce these core concepts of earning, saving, budgeting, and spending wisely. So when your child tags along on a grocery run or has their eye on an expensive new gadget, start a dialogue about money – allow them the chance to give their input, and most importantly, to learn. They’ll be thanking you (if not now) in the future.