In the current economic situation, everyone seems to be more conscious of spending and saving. In a previous post, I wrote about how to help kids understand the economy. In this one, I would like to give you ten tips for enlarging the lessons and encouraging kids to adopt your values about money management.
Most children learn math skills to help them balance a checkbook, some learn how to calculate compound interest, and fewer learn about saving, spending and financial management. Parents are the best people to instill how to manage money, as it is more of a value than a skill.
In an effort to provide some ideas about how to discuss economic and financial issues with your kids, here are ten simple tactics that can be done regularly:
1. Advertisements. As pervasive as they are, in magazines and on TV and billboards, this is the 101 of sparking financially savvy conversations. Let ads bring up the idea of needs versus wants. As young as five, children can grasp the difference. Make a list as a family of needs and wants (grown-ups participate just as much for a powerful lesson) and learn more about the values and preferences of your children in the process.
2. A Dollar in Change. Most kids only ever watch where and how money is spent. They do not see the paychecks, the budget, bill paying, charitable donations, etc. An easy way to represent this concept is to take nickels, dimes and quarters and affix stickers to them representing where that part of the dollar goes in the family budget. A quarter might be labeled “taxes” and another quarter “housing”, a dime might be “vacations”, another dime might be “savings”. Once your kids recognize that every bit of every dollar is important, they will also learn what is left for unplanned or impulse purchases.
3. Grocery Store Challenge. Once your child is old enough to add and subtract, a grocery store trip can become a scavenger hunt. Give each child a list of items that should total around $25. Put a good price next to each item, such as $3 for a gallon of milk. As you shop, encourage her to find a brand of that item for less than the amount written. If she succeeds in keeping the total less than $25, she gets to keep the difference. If she goes over, she has to put back items that she likes.
4. Lesson in Immediacy. We tend to pay more for things when we are out because we want them “right now”. The next time your child begs you for overpriced popcorn at the movies or ice cream at the shop, offer to pay him $1 if he has some at home instead. This is a good lesson in impulse buying. If he still goes for the treat, no big deal. We all indulge in impulses occasionally.
5. Interest in Interest. After second grade, kids can understand the concept of interest accruing. Add three pennies to your child’s bank weekly for every dollar saved. If your kid wants to borrow money from the bank, you take seven cents away each week for every dollar borrowed. The concept of interest will make a lasting impact, but only if there is a way for the child to pay the money back!
6. Bill Reduction. Choose one of the monthly bills based on consumption, such as electric, phone or water, and read it together as a family. Determine ideas for how the family might reduce it, and create an incentive. If the following month, the bill goes down, the money saved goes toward a special treat for the family. Tracking the bill over several months teaches kids about bill paying and the rewards of saving.
7. The Game of Life. The actual game by Milton Bradley is typically for kids 8 and up. The board will spark discussions about taxes, interest, insurance, careers, stock markets, and financial luck. There are alternate versions from the original that include credit cards and nontraditional work paths.
8. Mini-Budgets for Kids. Older kids especially tend to become power strugglers about money. The name brand versus the waste of extra cost. The lack of understanding of a dollar versus the feeling that mom and dad don’t understand. Giving tweens a quarterly budget for category spending (food, clothes, music, toys, etc.) will likely decrease the arguments once they are able to make their own decisions and feel the impact of spending.
9. Mega-Budgets for the Family. Vacation is a great experiment in budgeting, as it reveals all of the invisible costs of life at home (food, housing, transportation, entertainment, etc.). Include your kids in the planning and saving process for the next vacation. Let them be part of the decisions to skip camp or the spring break trip to go on a bigger, better vacation later in the year. This can then be continued by showing them how to save by sharing a room to cut lodging costs, or saving on food costs by eating big free hotel breakfasts and light lunches.
10. Celebrity Gossip. Since we are so obsessed with celebrities, we may as well use them to serve as financial role models. As you come across stories about how they spend, save or invest, discuss what it means to give away half of your fortune or spend millions on excessive luxuries. Focus on the actions people take not the dollar amounts. Your role as a financial educator emerges, and you can insist that net worth is not self-worth. It is not what you earn, but rather how you spend, save and give it away that matters.
* Some information taken from Parenting magazine.