Important Money Skills to Teach Your Children

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kids and money financial planning cost of raising a child children and money

Hi everyone! Jacob here! I just got back from New York City over the past weekend, where I had went to watch my girlfriend run the ING New York City Marathon. It was quite the experience! I’ll have some more updates on my trip in the coming days’ posts. 


The following is a guest post by Ashley over at Everything Finance and Money Talks Coaching. Everything Finance is a site about just that, everything related to finance. You can get information about investing, saving money, shopping, blogging, and making money online. If you like what you see here, make sure to stop by or better yet subscribe to their feed so you don’t miss a thing.

There is no better time for a person to develop strong skills on how to handle money than when they are young and don’t have too much of it. It’s better to make your mistakes before there is a lot of money on the line. Some of these skills for handling money include, saving, proper spending and budgeting, weighing cost vs. benefits, and price comparison. Let’s take a look at each of these one by one.

Saving

Saving is one of the most basic elements of society, and it is one of the defining characteristics of the haves and the have-nots. Many times, the have-nots are have-nots because they save-not. Saving is the basic building block of wealth creation, and if you want your children to become wealthy you need to instill the importance of saving.

Some parents have their kids save a percentage of the money they receive. Others encourage their kids to save a certain dollar amount. Saving for goals is another great way to instill a love and respect of saving money. Who knows, maybe you can get them to start saving for college.

Getting kids saving early will have two positive effects. First, they will learn to save at a very early age. Second, when the time comes, they will have an already established nest egg to tap when the need arises.

Proper Spending and Budgeting

Teaching your kids to properly plan out their spending and to budget for both the known and the unknown will save them an immeasurable amount of money in the future. As the saying goes, “Proper planning produces predictable results,” and that goes the same with proper spending and budgeting. The purpose of proper spending is to avoid overspending and breaking your budget. Teaching this principle to your child at an early age will ensure that they will make sound financial decisions later in life.

Don’t be afraid to share your household budget with your children in an age appropriate way. You don’t need to share struggles, but it’s a good introduction to the world if they have a realistic idea of how much things cost.

Price Comparison

It is always a good idea to do proper market research before making a large purchase. Including your children in your shopping decisions will teach them the value of shopping around. You will have opportunites to share when you want to buy the cheapest thing on the market and when you don’t. It will also provide chances to discuss martketing techinques and how to determine the quality of an item before you make the purchase. This skill will serve them well in life.

Children need guidance on financial matters just like anything else in life. The sooner you can get started the better. You can develop habits in your kids that will take care of them long after you are no longer able to.

How about you all? What financial skills do you feel are most important to in-grain in your children as soon as possible? What techniques do you use to teach them these skills? 


Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

  • Very good post here Ashley! Teaching kids about money is a topic about which I feel very passionate, so I’m very glad to share this with the readers. And, I look forward to hearing everyone’s opinion on good ways to teach children essential financial skills. 
  • @ Taking risk when you are younger -
    • Along with being able to take more risk when one is younger because they don’t have much money, young folks are also able to take on more risk in regards to investing (i.e. can be more heavily invested in equities vs. fixed income securities) because of the longer investing time horizon they have. 
    • For example, a young person at the age of 18 can recover quite nicely from a 70% drop in his or her portfolio, since they have almost 50 years of investing ahead of them to recoup this loss. However, if someone is 50 years old and will be retiring soon, recovering from this loss would be almost impossible, since they would need more than a 100% gain to recoup their money.
  • @ Benefits of saving from an early age - 
    • I just wanted to briefly echo the importance of saving at an early age. Why is this? Simple – it’s due to the “miracle of compound interest.” 
    • If someone at the age of 18 were to invest $1000 in to a “boring” ETF or index mutual fund that tracks the entire US stock market (such as the ETF, VTI from Vanguard) and merely let it sit until they retired at the age of 65, it would be worth a little over $88,000 (assuming the historical annual average return of 10%). This is pretty awesome if you ask me! 
  • @ Importance of instilling in kids a MINDSET of saving (not just the act of saving itself) -
    • Along with teaching your children the importance of the action of saving and then getting them to do it, I believe it’s also equally as important to instill in them the mindset of being a saver. 
    • If you can teach them to make savings a part of their life and to actually enjoy watching their balances grow over time, this can be much more important than simply getting them to invest some of their money during childhood.
  • @ Teaching your children about proper spending - 
    • In today’s credit-card-debt-laiden society, teaching children the proper way to view spending is critical (and also very difficult, I imagine). 
    • However, I believe it’s important to make sure that they learn that they can only buy things if they already have the money to buy it. If they don’t have the money, they need to be taught that they cannot simply use their credit card to cover the rest and “make up for it later.”
    • This point also goes back to instilling a mindset of good financial habits, not just getting them to do the actions once. 
  • @ Other money skills to teach children and some of my favorite techniques - 
    • I’ve discussed several other of my favorite ways for parents to give their children a good financial head-start in life previously on this site (since this is one of my favorite topics).
    • Some of my favorites include buying your child 1 share of a stock in a company in which they would be interested to use as a springboard to teach them financial matters and also helping them to open up a small business (think lemonade stand!) to help them fund a desired purchase.

***Photo courtesy of http://www.flickr.com/photos/goodncrazy/4833445750/sizes/o/in/photostream/

Comments

  1. Comprehensive post. You might find this article interesting, about a parent who encouraged entrepreneurship by entrusting his son with a vending machine:
    http://blog.thestartuptoolkit.com/2011/10/my-dad-

    • That is an awesome article, Scott. My parents entrusted money to me and I had to work for it. However, I was instilled personal finance wisdom by my dad that stuck with me. It is definitely important that the guardians over you invest in your life. I know that it completely affected me.
      My recent post Index Funds, Yay or Nay?

  2. Another important lesson to teach your children regarding money is to be generous in giving. When our kids were young we helped them set aside a portion of their allowance to give away.
    My recent post Christmas On A Budget Best Ways to Save Money During the Holidays

    • @ Dave – That is an important thing to do. I imagine it can be pretty hard to convince them of the importance of giving though. How did that part of the matter work for you?
      My recent post Easy Like Sunday Morning Weekly Recap and Roundup – # 5 – December 17th, 2011

  3. I would say budgeting and dicispline are keys a parent should teach a child about money. When your money is gone it is gone. The sooner a kid knows that if he/she buys A they can't get B until later the better they will be
    My recent post IS RAISING A DOG LIKE RAISING A CHILD?

  4. Great list. I think discipline is the most important though. You need that will power to stay focused on your goals and to keep you from spending when you shouldn't. This just gets harder as you get older so the younger you are when you get used to this the better.
    My recent post How to Make Your Own Clothes

  5. All that you say it true.
    Despite what my parents tried to teach me I used to waste a lot of money in shopping. It’s only when I started to work to pay my holidays that I start to save and enjoy saving a lot to then appreciate what I have worked hard for.

    It reminds me of a great youtube video about the marshmallow test, very instructing!

    • That's definitely true Flor! Vacations where I truly get to experience something amazing are worth so much more than shorter-term spending pleasures.
      My recent post Easy Like Sunday Morning Weekly Recap and Roundup – # 5 – December 17th, 2011

  6. Its time for my children to begin learning a bout watching there money and understanding what things cost. They are always very generous to other but need to teach them to value what they have and what they would like.
    My recent post Stock Trading Algorithms

  7. mirandagirl says:

    I always bring along the kids during weekend on groceries, I always find ways that they can participate with this chores. When we are on the grocery I let them get 3 cans of chicken soup in different brand. and compare the content and the price, that way I am teaching them to be aware of comparing commodities according to their price and their content.

    • Very cool idea Miranda! I wish my parents would have done that when we were shopping when I was a kid. I actually never learned the price differentials between generic and name brand until I was out of high school and buying my own groceries.
      My recent post Easy Like Sunday Morning Weekly Recap and Roundup – # 5 – December 17th, 2011

  8. I'm a big fan of minor savings accounts and rolling coins (for kids). I'll never forget when my mother opened an account for me. I used to get so excited when my statement would come, and I made a penny.
    My recent post Link Cuisine

    • @ Funancials – The rolling coins idea is an interesting one! Is the reasoning behind that that it gives kids something physical to see with their savings?
      My recent post Easy Like Sunday Morning Weekly Recap and Roundup – # 5 – December 17th, 2011

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