For most children, money is an abstract concept. Maybe they equate it with swiping a card or receiving a birthday gift, but they probably lack an understanding of financial decisions, savings, and its real value. By teaching them lessons early and setting good examples, there are simple ways to raise financially responsible children.
This will help turn them into financially responsible adults, a key part of legacy planning. Your children may be next in line to care for your wealth, so we recommend taking steps now to ensure they are strategic, knowledgeable, and accountable later. Here are four small ways to incorporate financial education into the way you raise your children.
Give your child an allowance. This is a very common and simple way for parents to introduce money to their kids. It’s also very customizable, as you can decide on the allowance’s amount and frequency. No matter how much you give, allowances help children save, budget, and handle money. We even encourage you to let your child make bad decisions. It is much better for them to learn the consequences of spending all their money on something they don’t need with a $20 allowance rather than their first salary.
Explain needs versus wants. This is a key part of understanding how to spend and save and a great way to involve your children in your day-to-day spending. Show them that, even if you think you need that front-row concert ticket, you must account for the month’s gas money first. Create the differentiation between impulsive wants and necessities. Again, allow them to spend too much of their allowance on wants. They will learn that that way of spending is not sustainable.
Involve your children in major purchases. This doesn’t necessarily mean giving your child a say in what car your family should buy next. Rather, it means allowing them to go through the process of making a big purchase with you. Give them a recap of the research you did to arrive at the item or service you’re purchasing. Take them with you to see it and talk to salespeople in person. If you feel inclined, you could give them simulated decisions along the way to see how they’re taking in the experience. All this will help them understand big purchases' weight and financial importance.
Post-high school planning is a major financial decision in which you should involve your child. It’s critical to start saving early and talk to them about planning for the costs of secondary education, technical school, or heading straight into the workforce. Even if you, as a parent, can fully afford to support your child out of high school, you still have a responsibility to help them grasp the value of their choices.
Allow them the chance to spend money. Even if you give your child an allowance, it can also be a good experience to give them some extra money to practice making decisions with. You can change the amount of money or level of responsibility depending on their age. For example, you could give your youngest child a snack budget, where they can go with you to the grocery store and pick out family snacks. For older kids, you might ask them to do the family’s grocery shopping for the week. This will help them understand food as an expense and imagine how they will spend money on food in the future.
These are just a few easy ways to help children build their financial literacy from a young age. If this interests you, we recommend that you slowly add these tactics into practice. If you’d like to discuss your financial legacy further, Client 1st Financial is ready to meet you, understand your situation, and recommend the next steps. Read more about why legacy planning is important, or contact us here.