With the technology of today, a cashless environment for retail is becoming more of a reality. I for one love it, and it has its perks and conveniences. However, it does add some complexity when trying to teach young children about money.
When I was growing up, when we went shopping I would see my dad open up his wallet. He would take the bills from his wallet, sigh, and then hand them to the cashier. The emptying of the money from his billfold, along with him sighing, made it very apparent to me that he worked hard for that money. I knew that the money was not unlimited. If I did not take care of my Cabbage Patch doll (yeah remember those!), I was not getting another one.
One thing I have learned by being a parent today, is that those same visual concepts of money are blurred now. I am reminded of the time when my 6 year old son told me, “Mommy it is okay if I break my Nerf gun, it’s free”. I remember looking at him puzzled, wondering why he thought that. So I asked him to explain why he thought it was free. His simple answer, “ You just pick them for me on Amazon and then the mail lady brings them to me.”
I was dumbfounded, but it made sense. He did not see any money change hands. We did not go to a store and pay the cashier. It was as simple as just point and click. Why would he not think his Nerf gun was free? It became apparent to me then, that I needed to do a better job of teaching my children the value of money, and how to be more financially savvy.
These are seven tips that our family uses in our pursuit to raise more financially savvy children.
1. Give your kids an allowance that they have to earn
If you are just giving your kids an allowance without making them work for it, you’re passing along the wrong message to your kids. By setting up chores that your kids have to do in order to get the allowance, you are teaching them the relationship between work and money.
What we are doing with our children is a two tier system. There is a base set of chores that each child must do to get the basic allowance. Chores differ based on age, but the basic concept is to have them do a few things that they would be expected to do like clean their room, putting their dirty clothes in the laundry, help with setting dinner, etc. If they complete this for the week then they get the base allowance.
The amount you decide to give each child as a base allowance is up to you, but what many people do is just base it on age. For instance an 8 year old would get $8 dollars a week.
Now where it gets interesting is the opportunity to earn more than their allowance. We created a secondary list of chores they can choose from. It varies from time to time. For us it's chores like yard work, washing the car, etc. This instills the concept of over-achieving and working harder to make more money to meet a specific goal.
2. Show your kids that things they want cost money
While the concept that things you own cost money is clear to you, it may not be so clear to your children since all they see is you swiping credit cards. While I rarely pay cash for things that I can earn points on by using a credit card, I believe there is an important lesson for kids by paying cash at least a few times. Nothing makes it clearer to a child that things cost money, then for them to hand their hard earned dollars over to a cashier at the store in exchange for an item they want.
This will help you explain that even though you are using a credit card, you still have to give money to the credit card company. Also as a side benefit, once your kids are spending their own money you will find that they take better care of the things they purchase.
3. Give your kids an early lesson in budgeting
Now you may have heard of the classic three jar system to teach the concept of saving versus spending. The idea is that you have three separate clear jars labeled save, spend, and share. Your kids decide how to split the money across the three. This can be money they earn from their allowance or money they get from birthdays and holidays. While you can use anything to store the money, using three clear jars works great for young kids because they can easily see how their money grows over time.
The three jar approach teaches your kids how to budget their money. They will learn the importance of saving money to reach their goals.
While this method works, we decided to jazz it up a bit and introduce the concept of compound interest and matching funds for our three jar system.
Spend Jar is for purchases the kids want to purchase right away. Kids can spend from this jar right away, but no interest is earned on any money in this jar.
Save Jar is where your children put money away for big purchases. As an incentive for the kids to save their money we set a weekly compound interest rate for the save jar. I found that while it is more work, weekly interest works better than monthly for kids to keep them engaged. Each Sunday evening right before they get their weekly allowance for completing their chores, we give them 2% interest on whatever they have in the savings jar.
Share Jar is where money is saved for giving to others. The share jar is a little more of a tough concept for young children, but I wanted to teach my kids early on the importance of giving money to charities. We took advantage of annual school fund drives for charities like the American Heart Association where the kids can win prizes for raising money for a good cause. To help build the donation they gave, we did a two to one match for whatever they gave. So $20 from them resulted in a $60 donation. I was amazed how well that method worked, and it's all for a good cause.
4. Teach your kids about delayed gratification
You may have heard about the marshmallow study Walter Mischel did back in the late 1960's to learn childhood behavior when it comes to delayed gratification. In the study, a child could have one marshmallow right away, or if they waited fifteen minutes they could have two. Although some of the research has been refuted, the basic findings were that kids that waited did better in life.
This concept of marshmallows can easily be translated to money and your kids. Teach them to forgo that impulse item they saw in the store that will give them a few minutes of joy. Explain to them if they buy that now they will have less money to put in the save money jar to save for the item they really wanted.
Now depending on your child's age this method may not always work, but after a few times of seeing their money going down in their savings jar it should start to sink in.
5. Involve your kids in your big family purchases
Get your kids involved with your big family purchases. Whether you’re buying a new car or refrigerator, it’s good to let your kids learn what is involved in making that purchase. It’s good for them to see you comparing different models and checking prices at different locations. They will learn that you have to take care when spending a lot of money, and not to just buy the first item they see.
6.Teach your kids how to be a smart shopper
Teach your kids how to save money on the things they buy with smart shopping and coupons. My kids never understood why I try to wait until things go on sale or used coupons until I had them start using their own money. Now the first thing they ask is “Mom is there a coupon for that?”
7. Set positive financial examples for your kids
This may be one of the most important tips that parents overlook. One thing I have learned from being a parent is that kids are very observant. They are often more likely to learn by copying what you do, rather than what you tell them to do. It's important for your kids to see you being financially savvy, as that will reinforce the lessons you teach them.