Want To Raise Money Savvy Kids?

I find that raising kids who are financially savvy is harder than it ever was. My mother may disagree with me here. But there are so many factors working against us these days. We do much of our purchasing with credit and debit cards, both of which cause a sort of detachment from the money we’re spending. Your kids may rarely see you use cash, and they certainly don’t often see you writing checks the way I used to watch my parents do as they paid the bills each month from the kitchen table. I pay my bills the way most of you I expect pay yours, online.

Other purchases are made virtually, without even taking out our wallets. You can buy nearly anything you want on Amazon with the click of a button (and your kids, if they have access to a family computer, may have that same luxury). And then there is the ever expanding purchasing power of our phones. We spend so fluidly, so easily, your children probably don’t even realize that you’re doing it. (Sometimes you probably don’t realize it yourself.)

So how, in this environment can you raise children to be financially savvy?

· Start early. But according to research from the University of Cambridge, many money habits are set by age seven. At that age, the study says, most children are able to recognize the value of money and understand that money can be exchanged for goods, as well as what it means to earn money. They’re also capable of some of the mental functions that come in handy when it comes to your finances, things like planning ahead, delaying a decision – or in this case, a purchase – until later, and understanding that some choices are irreversible.

· Consider an allowance. I like these as a teaching tool – in part because your kids need to have access to money of their own in order to learn to manage it. And these are a way to get it to them consistently. But I believe many parents don’t administer them correctly. When you give your kids an allowance, you should also give them a list of things for which you will no longer be paying. When they’re young, that might be check-out candy at the grocery store. (That’s why you can start with $1 a week for each year of age). When they’re older (and out of the age of social distancing), it’s concert tickets, vending machine snacks when you’ve packed them a lunch, or coffee drinks from Starbucks. As they get older – and their allowance gets larger (although, not so large that they can buy whatever they want) – you hand off more and more responsibilities. This teaches them to prioritize their spending.

· Reward saving. Begin with a blanket statement: You should save at least 10% of any money you have. If your kids can adhere to that throughout their lives, they’ll have a leg up on adult goals – like retirement. But also acknowledge, it’s hard to save for a $100 purchase on an allowance of $5 a week. So, consider implementing a homegrown 401(k) where you match their savings to get them to their goals faster. Remember: You want them to learn that saving is a good thing and so you want them to succeed here, even if it costs you a little bit more.

· Insist that your teens work. Money they earn themselves is going to be more valuable to them than money that is given to them. Your kids will blow through their allowance much faster than they’ll blow through the money the neighbor paid them to mow the lawn (and they’ll blow through your money the fastest of all, if you let them). That’s because as soon as they start working, they’ll make the connection between the money in their paycheck (or handed to them for babysitting) and an hour of their time. They’ll be more inclined to save it for something they really want – you may no longer have to enforce the savings rule, they may be doing it on their own.

· Don’t bail them out. Finally, although it’s sometimes it’s easier to hand over a dollar of yours when your kids have blown all of theirs and avoid the argument. But when you do it, you’re not teaching your kids the most valuable lesson of all: When the money is gone, it’s gone.