Teaching your children the importance of saving money can be a struggle. If the idea is forced and the child doesn’t understand why they can’t just buy the toy they really want instead of putting their money away, they might grow to resent it. How do parents send the right message about saving?
Be aware that there are noncash financial gifts such as treasury bonds or a stock certificate options to use as education tools. As kids age, you can introduce cash gifts, but at the same time you must also help them learn how to handle money.
Around the age of 10 is a great time to give your child control of their own money but in a directed way. You are going to give them a three- option framework to work from, but you must leave the choices to them. This is an opportunity for you to learn too: How good is your child at making the “right” money choices?
You need to give them the room to make those choices, and then if you are not comfortable with how they are handling things, that’s when your teaching begins. But first you must give them power over their money. I imagine that sounds very odd to you. But think about it. If you don’t give them a true stake in the decisions, you likely won’t get their full attention, and they won’t engage in this very important learning process.
The Three- Option Approach
Sit down with your child and explain that the annual holiday and birthday money they receive is theirs to handle, but they must tell you with each gift the how and why of what they choose to do with the money. You will frame this conversation by laying out three possible options:
– They save it for a future goal
– They spend it
– They share some of it by making a charitable donation
If they look at you and say they want to use 100% to spend, well, you have some parenting to do on the importance of saving and giving. If your child wants to only spend, consider whether your behavior has on some level influenced them that this is acceptable. Children can be influenced by friends, tv, or advertising but what they experience at home is probably most influential of all.
If you have done a good job of educating your children then hopefully they will want to save, spend, and donate. All these are important. I’d rather see a child spend some of their money than put 100% in savings or give it all away. The goal here is to teach your child how to handle money, and all three options have a place in our lives.
It is important to give children some anonymity with a spending account. If you prevent your child from being able to use some of their money, to touch it (physically), and use it to buy things (yes, wants are OK!), then learning will not happen. Help them learn how to spend responsibly— in moderation— today. That will serve them well as adults.
Also, if you have a financial advisor consider introducing your child and asking if they have any advice or material for teaching children about money. We here at Worthwhile Wealth Council are always excited to see and help teach children the power of saving, investing and giving!
This commentary was originally posted December 5th 2019
**Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.