Teach Your Kids To Spend Wisely

When my first son was an only child I would buy him a new toy almost every time we went to the store.  I figured it was only a few bucks and it made him really happy.  But after a few years, we had an endless amount of little knick-knack toys laying around the house.  Now my boys and I have good understanding about toys when we go shopping.  We can go look through the aisles and point out things they may want on their next special occasion, but no buying.  Sometimes they will have have a lapse in willpower and start begging for a toy.   When this happens, I explain to them that we don’t have money budgeted to buy toys that aren’t for a special day or achievment.  One day my four year old, Aiden, surprised me by saying “That’s okay, Mom.  You can just order it off the Internet when we get home.”  Apparently he was under the assumption that anything you order from the Internet is free. 

Upon hearing that, I realized that Aiden needed a little education in the ways of money.   He already knew how to count his fake money in his little cash register.  We had done work sheets on how much coins and dollars where worth.  And he even had a piggy bank that counted the money he saved.  He obviously knew how money worked and what it was worth, but had I failed to teach him the value of a dollar?  The greatest influence on a child’s spending behavior is what their parents do with and say about money in the real world.  That’s how kids learn, by watching us, day in and day out.  It’s easy to overlook some crucial, yet simple, ways to teach kids about money.  Here are three techniques that you can start using now.

Don’t Say “We can’t afford it”

You can start teaching a child as young as three to have a healthy attitude about money simply by using the right language.  Saying ‘we can’t afford it’, especially when it is not true, can be detrimental.  You don’t want your kids to feel like they’re victims of money.  You want to show your child that you’re in control of your cash, not the other way around.  Children won’t learn to manage their money well unless they understand they have a choice about how to use it.  If they want something that you don’t want to buy, simply tell them that you haven’t budgeted for it.

Teach Them How to Budget

The next step is to teach your child about spending, saving, and making good money choices.  To do that, give your child a little spending money of their own, starting when they’re as young as three.  Let them know that this allowance is for cleaning their room, taking their nap on time, etc.  As they get older, obviously their set of chores can increase.  50 cents a week per year of your child’s age ($2 a week for a 4-year-old, for instance) can be a great teaching tool.  Help your child develop a simple plan for his allowance.  A good rule of thumb:

• 60 percent of his money goes into a savings jar
• 30 percent goes into a “quick cash” (spend freely) jar
• 10 percent goes into a “giving to charity” jar

Don’t worry if your child doesn’t seem to get the saving and spending concepts when you first start.  Kids don’t always understand why they have to do things, but you’re helping them develop a good habit that will matter later in life.

Talk About How Much Things Cost

Whether it’s a toy or a t-shirt, kids should have a ballpark idea of the price of things in their lives.  Prices can help kids understand why we can immediately spend $1 on a bottle of bubbles but we have to save for a train track that costs $100.  Use the play money to show your children how you spend.  Starting at around age 6, count out your family’s monthly income.  Then show them how much you need to take out for mortgage, groceries and other essentials.   For a younger child, you can keep it simpler (and your salary more private) by subtracting the costs of a day’s errands (bread, gas, stamps) from a “Today’s Expenses” fund of, say, $30.  In most households, parents don’t talk enough about finances with their kids.  Family finance chats are a good thing.  Just be careful not to talk about your child causing money problems or costing too much, as in “Paying for your soccer league made us go over our budget.”

Showing your kids how you spend your money wisely, which in turn teaches them how to spend their money wisely, is an investment that will pay off for the rest of their lives.