How to teach your kids to save money (financial responsibility)

While saving and investing for your child’s future is important, its also important that you teach your kids about money (depends on their ages).

Teach Children Financial Responsibility

There’s no age limit for helping your kids learn to manage money. Here are top tips to teach your children financial responsibility.

Teach them to budget

An allowance can be a great first step in showing your kids how to manage money. You might give money every week to the youngest children at two week intervals for preteens – and monthly for teenagers. Gradually spreading out the timing will help your children understand the need to manage their spending.

Show them the value of saving

It’s only natural for money to burn a hole in the pockets of the youngest kids. But it‘s important for them to discover the benefits of delayed gratification. If there’s a toy or a game they have their eyes on, suggest they forgo spending their allowance on ice cream or another immediate pleasure and instead save for a few weeks to make the bigger purchase.

Let them earn a little extra

You probably expect your kids to clean their room, help who dishes and do other daily chores. But consider offering them the chance to make extra money by helping you organize the garage, washing the windows or taking on another job that goes beyond the routine. Getting paid for that extra work will help instil good habits and give children more control over saving and spending.

Introduce Philanthropy

Even when your kids are very young, you can speak with them about your charitable gifts. Talk to them about organizations they might like to support, then earmark part of their allowance for donations to those causes.

Create learning opportunities

If your children spend their entire allowance right away, resist requests for more money before their next allowance is due. Negative consequences can carry powerful lessons. If you talk with your kids about how to do better the next time around, they’ll start making smarter choices.

Kindergarten/Elementary

1. Use a clear jar to save. The piggy bank is a great idea, but it doesn’t give kids any visual. When you use a clear jar, they see the money growing. Yesterday, they had a dollar bill and five dimes. Today, they have a dollar bill, five dimes and a quarter! Talk through this with them and make a big deal about it!

2. Set an example. Little eyes are watching you. If you’re slapping down plastic every time you go out to dinner or to the grocery store, they will eventually notice. If, at the end of every month, you and your spouse are arguing about money, they’ll notice. Set a healthy example for them, and they’ll be much more likely to follow it when they get older.

3. Show them that stuff costs money. You’ve got to do more than just say, “That pack of toy cars costs $5, son.” Help them grab a few dollars out of the jar, take it with them to the store, and physically hand the money to the cashier. This simple action will do more than just a five-minute lecture.

Tweens (between 10 and 12 years)

4. Show opportunity cost. That’s just another way of saying, “If you buy this video game, then you won’t have the money to buy that pair of shoes.” At this age, your kids should be able to weigh decisions and realize that each decision has a consequence.

5. Give commissions, not allowances. Don’t just give your kids money for breathing. Pay them commissions based on chores they do around the house like taking out the trash, cleaning their room, or mowing the grass. This will help them understand that money is earned—it’s not just given to them.

6. Stress the importance of giving. Once they start making a little money, be sure you teach them about giving. They can pick a church, a charity or even someone they know who needs a little help. Eventually, they’ll see how giving doesn’t just affect the people they give to, it affects the giver as well.

Teenagers

7. Give them the responsibility of a bank account. By the time your kid is a teenager, you should be able to set them up with a simple bank account if you’ve been doing some of the above all along. This takes money management to the next level, and it will prepare them for (hopefully) managing a much heftier account balance when they get older.

8. “Help” them find a job. Teenagers have plenty of free time—fall break, summer break, winter break, spring break. If your teen needs money (and what teen doesn’t need money?), then help them find a job. Who knew that working was a great way to make money?

9. Teach them the danger of credit cards. As soon as your kid turns 18, they will get hounded by credit card salesmen—especially once they’re in college. If you haven’t taught them why debt is a bad idea, they’ll become another credit card victim.

Source: daveramsey

Let young earners make their own financial decisions

Parents, its best that you let first-time earners make their own financial decisions and not force them into making any financial commitments (for a few years), so that they can learn from their mistakes.

Don’t overuse the credit card. Don’t borrow. Don’t spend on parties, clothes, smartphones. Save for retirement. Start an SIP. Buy some gold. Invest in stocks. Don’t rent, buy a house and pay EMI instead. Save before you spend.

For the young earners, unsolicited financial advice comes freely from all the directions, especially anxious parents who are worried that their kids do not know to handle money.

Young earners will always feel that their earning is too small for the long list of needs and wants.

However, experts suggest that being financially independent (and stable) is something that they should learn mostly by themselves, and parents should stay away as much as possible.

Here are some suggestions for parents:

1. Allow time and experience for the young earners to use their money. There is no universal set of rules and habits that work for everyone. How someone will deal with money is a very personal choice and people need the time to develop the self-awareness about how and why they make the decisions they do with money.Some spend to impress; some spend to fight stress; some spend to enjoy the admiration of peers; some spend only if pushed; some don’t spend at all. To assume that all youngsters will spend all the money they have without thought, is to generalise too much.It takes a few months or years of earning and spending to develop the right financial habits. Allow the young to act and deal with the consequences of their action, so they learn from the experiences of spending money. Those lessons last longer than earnest parental advice that controls every action.
2. The first five years of one’s career is most demanding. Many young people are not even prepared for what their work lives would be like, and whether they are willing to do it for the long-term. Many choices of education and career are not made independently, but under tremendous pressure from parents.Or, the young have made career choices based on information available to them, and assumptions that seem reasonable. It is only when they begin to work that they understand what it takes, and are then able to evaluate whether they see themselves competent in the chosen job, whether they enjoy what they are doing, and whether there is something else that they can do.The exposure to the real world and to a larger network of people opens many opportunities that they did not even know existed. The first five to 10 years of work life is the foundation to a steady and growing career that brings stable incomes for a lifetime. Being burdened with an EMI of a house bought soon after the first job, simply ties an albatross to their necks. Don’t do it.
3. Flexibility in terms of the job and career is precious to a youngster. Being able to move from one area of work to another, or pick up an assignment in another location, or choose a second career, or take a break to study further, are all choices that young people make to build themselves as professionals.Some would use the home base and the comfort of the parental home; some others may want to move around like nomads. Persuading the young to get married, buy a house, have a child, or stay on with the parents are all traditional and emotional traps that are restrictive.The bonds with parents and family are strong enough for the young to stay connected and to return after finding their feet. Do not chain them with emotional blackmail while they seek to build their competencies and stabilise their incomes. Building value into the human asset that is themselves is the primary goal. All other assets can come later.
4. The biggest personal finance challenge for the young earner is managing cash flows. Unexpected need for money is a persistent problem, though it comes interspersed with periods of ample liquidity. They can put money aside from time to time, but they must draw upon it unexpectedly.A simple bank account that can be swiped into a fixed deposit, and swiped back in when needed, serves their needs quite well. If they can build on that relationship with the bank to get a pre-sanctioned personal loan or overdraft limit, that helps too. A credit card that enables a large spend when needed is welcome.Their financial life is one of managing liquidity most of the time. The key learnings they must achieve with experience is to make money decisions given that it is a limited resource. They can learn it best when they find the balance between cash and credit, spend and save, accumulate and withdraw, with time.

   Help them understand the costs of a credit card or personal loan; engage them in a conversation about borrowings; do not lock their money into illiquid assets.

5. Saving is a good habit. If a young earner can set money aside from the start, and build a corpus for a goal like higher education, marriage, housing, or even entrepreneurship, that is excellent. But that kind of long-term orientation towards money is a cultivated habit.The time someone takes to get there can be different. Give your children the time to see the merits and make the sacrifices needed to develop a steady saving habit. It is cruel to penalise a young earner into saving all earnings for an unknown future event.If there is a shared future goal, working towards it is worthwhile. Don’t make frugality a pre-condition and insist that youngsters make lifestyle compromises because that is the parent’s righteous view.

   It is fine for young earners to rent their accommodation, eat out instead of cook, travel with friends, and live a lifestyle that fits within their income. Saving habits can come in as they manage their cash flows and make decisions. It is important for income to stabilise, grow and become less risky with each year.

   That means they are fitting competent at what they do for a job, and can invest consistently in getting better at it. Personal financial decisions must support this primary goal and not take away from it in the form of housing EMIs, credit card dues, overdue loans or imposed lifestyle expenses that come with including a spouse in the scheme of things. Let them be, please.

   Source: economictimes

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