Do you wonder how to talk to your children about money or when it’s the right time to start? It’s a good idea to begin as soon as possible. The earlier you can teach –and, ideally, demonstrate to—your kids what a healthy relationship with money is, the better off they will be. Let’s dive into a few key things we can impart for a lifetime:
- Save, Save, Save: Saving is one of the most important lessons. Get a piggy bank for tots and then later, open a savings account. Teach them that whenever they receive or earn money, some should go in savings. If they receive an allowance, explain that at least 20% should be saved. Show them how fun it is to watch their savings grow!
- You have to earn your money: Life doesn’t give free handouts, so teach this early. Don’t give an allowance just because they are living and breathing. Allowances are for kids who help around the house and do their chores. By giving an allowance based on completed chores, they learn to work for their money. Once they are a teen, you shouldn’t be their sole source of income. Encourage your teen to find other ways to make money, like babysitting, mowing lawns, or a part-time job at the local grocery store. This will show your child how to earn money and build a good work ethic early on. After all, you don’t want to support them your entire life.
- Don’t spend more than you earn: As your child gets older, this is perhaps the most important thing you can teach. Teach little Johnny that if he made $20 in allowance this month, he simply cannot afford a $50 Tonka truck. Help your child learn how to budget and understand their inflows and outflows. If you help them understand this concept at an early age, they are less likely to get in trouble with credit card debt in the future.
- Teach them about credit cards: If your teen is considering getting a credit card, you need to explain the potential dangers. Many young people go out into the real world and quickly rack up credit card debt without understanding how much this can constrain their future. Teach your child about interest rates and the importance of paying off your entire balance each month. Also, explain to them the value of building a strong credit score and how it will help in the future when they are getting a mortgage or a car loan. We highly recommend your child start with a debit card before having the responsibility of a credit card.
- Spend with Intent: This is something I was taught at a very young age and it has helped me immensely in life. As a child, my mom and I would go “garage sale-ing” many summer weekends. At the start of the day, my mom would hand me 50 cents and tell me to spend it wisely. I would go from garage sale to garage sale trying to find something worthy enough for me to spend my 50 cents on. I learned not to spend it all at the first garage sale or else I would have nothing for the rest of the day. I was selective with my purchases, and bought with intent. As a young child, I learned not to spend impulsively. Now as an adult, I never buy anything that is over $200 without waiting at least 24 hours. It is seldom that I actually go back to the store the next day to purchase it. Teach your kids early that you should never spend impulsively and that you should wait at least 24 hours before you buy anything big. Another way to spend with intent is to determine what you need before you go shopping. Once you are at the mall, do not stray away from what you came for. Do not spend carelessly, spend with intent!
- Build up an emergency fund: Encourage your child to have a rainy-day fund. When I was 16, I spent almost my entire savings on a new car. At the time, I didn’t understand the importance of an emergency fund and, only a few months later, I had fender bender and no money to fix it. If your child is saving up for something, that is great! But explain that they should always have an emergency cushion to fall back on, especially if they are saving up for something that comes with its own responsibilities.
Your children will have a long, evolving relationship with money, as do all of us. It is important to be transparent and teach them financial responsibility. Remember, children often learn by example, so set a good one by having control over your finances. At Bloom Wealth Advisors we would love to talk with you AND your children (or grandchildren) about the responsibilities of money. Contact us to learn more!
