Talking to your children about money at an early age can give them the confidence and knowledge required to live a financially responsible life. A report by researchers at the University of Cambridge revealed that kids’ money habits are formed by the age of seven, so we stress to clients the importance of starting these conversations early. An effective way to approach money discussions with children is by seeking out opportunities every day to reinforce the following concepts.
Earn. Teach your children that in order to make money or earn income you must have a job and work hard at that job. Rewarding your children with a small income or allowance for completing chores or tasks around the home is an easy way to teach a child the value of hard work. Once your child has earned income, discuss options for allocating that money.
Save. The focus of this concept is delayed gratification – resisting a smaller more immediate reward in order to receive a larger more enduring reward later. This can be difficult concept for a young child to grasp, but children can comprehend this lesson by writing a wish list of toys, which helps them track their savings from earned allowance as they make progress towards having funds to buy the first toy on the list.
Spend. It’s extremely important that children understand that all of their income should not go towards savings. They should learn that a portion of the income can and should be used immediately, and it is the parent’s role to help them understand how not to spend more than they earn. In order to understand this concept, encourage them to purchase a pack of gum or some other small, inexpensive item next time you are at the store so they can see the immediate reward of their hard work.
Give. Instilling the importance of giving back to your community at a young age is an invaluable lesson to teach children. Encouraging them to allocate a small portion of their earnings to a specific charity is a good place to start. Whether it’s dropping a dollar in the offering plate at church or putting money in one of the charitable containers around town, there are many ways for children to learn the lesson and importance of giving back at a young age.
Grow. Teach your children about investing money, earning interest and return on investment by opening a savings account at a bank. As they add money they will see their savings grow over time. With the power of compounding, investing early and often at a young age can turn a small sum of money into a sizeable nest egg.
Parents are the primary influence on their children’s financial behavior so embracing that responsibility from the day children are born is critical but also rewarding.