Teaching Children to Manage Money
Americans wish their younger selves had known more about the value of saving money (59%), basic money management (52%), and how to set and work toward financial goals (51%), a new Charles Schwab Financial Literacy survey finds.
Financial socialization means helping families and kids acquire knowledge about money and money management and develop skills to help them become financially independent. Here are 3 Crucial Financial Lessons for Kids of All Ages from Stephanie Mackara.
1. Understand the Difference Between Wants and Needs
There are everyday opportunities to teach this concept. When your child asks you to buy anything, instead of saying “yes” to appease or “no,” than dealing with the resulting drama, simply ask “is that a need or a want?” This simple question will cause your child to pause and actually think about the purchase.
2. Prioritize and Make Good Spending Choices
When you take children to stores or shop online, explain how to plan purchases in advance, and make price comparisons. If you’re shopping for a new TV or home appliance, do your research and make your kids part of the process. Encourage them to do their own research when it comes to their “wants.” Kids are no strangers to technology and here it sure comes in handy. Show them how to check for value, quality, warranty, price comparisons, and consumer reviews.
3. Understand the Consequences of Choices
Unplanned spending or impulse purchases generally result in 20-30% of our money being wasted, often because we failed to do our research, or we attached no value to a “thing” and it simply goes into a pile of stuff. Whether your child makes a good or poor spending choice, they can learn from it. Explaining why something didn’t work like it was expected to, or showing them how comparing prices could have saved them money, all help to reinforce advanced planning. You can then initiate an open discussion of spending the pros and cons before more spending takes place.
Once these lessons are learned, you can begin goal-setting with your child. Nearly every item children ask their parents to buy for them can become the object of a goal-setting session. This helps children learn to become responsible for themselves. A great one is the Save, Spend, Share concept where children learn to budget their money equally across these areas.
Learning and practicing this will help them develop strong financial practices and lead to thoughtful, disciplined investing and saving as adults.
Stephanie W. Mackara, JD, CDFA™, is President & Principal Wealth Advisor of Charleston Investment Advisors, LLC. A financial socialization expert, Stephanie is a wife, mother, and author of the new book “Money Minded Families.” She teaches people that financial wellness begins with your mindset, not your bank account.