Navigating the world of finances as a young adult can be overwhelming. Achieving financial independence from your parents can be difficult to attain, especially if you weren’t taught how to manage money from a young age.
Set your children up for success by teaching them good financial principles as soon as you can.
With young children, it’s best to start simple. Begin by teaching your children the three most basic financial principles: give, save and spend.
An easy, weekly practice
You can teach your kids these basic financial principles by giving them a weekly allowance. Jen McCoy, Certified Financial Planner, suggests giving young kids a small amount of money, such as $1.
Jen also suggests giving the dollar to your children in change, specifically dimes. She did this with her own kids when they were young.
By giving your child a dollar in change, they can physically divvy up the change into three separate categories: give, save and spend. This helps them understand the basics of income allocation through a weekly hands-on activity.
Jen had her kids use envelopes to store their weekly allowance – one for each of the three basic financial principles. You can follow her lead, or use the “Save, Share, Spend” bank kids receive when they open a youth savings account at Everence® Federal Credit Union.
Give
It’s important to start teaching stewardship from a young age. By setting aside funds for giving specifically, your child will learn from a young age to make it a priority.
The general tithing standard is to set aside 10% of one’s income, so you can have your child set aside a dime for this fund, or more if you choose.
Let your child feel the impact of their giving. Allow them to place their tithes into the offering basket during church or into a donation box. Explain to them how their money will be used and why giving is important.
Save
The save category is for larger purchases (such as the $50 Lego set your child has been eyeing). This helps your child learn the importance of setting aside money for bigger, more exciting purchases.
You can choose how much you want your kids to set aside for this category. Maybe you want to teach your child from an early age to be an aggressive saver and you’ll have them set aside 40 cents for savings.
Celebrate milestones with your kids when they hit their savings goals. Make a special outing to the store to pick up that Lego set!
Spend
The spend category represents funds your kid can use to buy things they want – such as a candy bar, an inexpensive stuffed toy and more.
Again, you can choose how much you want your kids to put into this category. Jen, for instance, had her kids allocate 80 cents into this fund.
It will take your kids quite a while to be able to purchase something, but it reinforces the importance of patience. It also helps them understand the limits of their spending power.
Discuss with your child the importance of making good financial decisions – if they buy a candy bar every time they go to the grocery store, they probably won’t be able to buy the aforementioned Lego set.
As your kids age, their weekly allowance should grow alongside them. While $1 a week might be reasonable for a 6-year-old, it may not be for a 12-year-old. Do what makes sense for your family and your kids.
Also, keep in mind that teaching your kids about finances is an ongoing process. As kids grow and begin to earn more money, you’ll need to continue to reinforce and praise good spending, saving and giving habits.
Still have questions about teaching your kids about finances? Go to everence.com/youth-savings to learn more.