5 Good Money Habits to Pass on to Your Children
Good savings habits are best modeled.
I truly believe that one of the most important things my parents did for me as a child was give me the opportunity to work for things myself. They operated on the philosophy that even if they could give me everything that I desired, I would have less to work for. “You’ll thank me later,” they’d say. I finally have, as I now realize that it provided me with a financial confidence that not all young adults are fortunate to possess.
LPL Financial recently wrote an insightful article that provides 5 good money habits to pass on to your children (excerpted below):
- Be specific when telling children what things cost: Young children lack points of reference when understanding the true cost of a toy, electronic game or cell phone. The purchase price alone does not fully reflect total cost, particularly with cell phones that require activation and monthly charges.
- Let them make choices with money beginning at a young age: Consider starting kids out with a weekly allowance in elementary school, say $5. Then ask probing questions: Is it better to save or spend an allowance? Would sharing their money for a good cause interest them? Help your kids open a bank savings account, showing them how regular savings build up over time. As they grow, consider raising their allowance, and encourage them to earn their own pocket money while in high school.
- Ask the right questions before making a purchase: Do children really need the most expensive pair of sneakers? Would checking a novel out from the public library for free be better than buying one at the local bookstore? Does a national brand cereal taste that much better than the supermarket brand?
- Setup “buckets” for short, intermediate, and long-term goals: Young teens should be able to differentiate between near-term goals (a movie this weekend), intermediate needs (back-to-school clothes), and long-term goals (college). It’s likely that their spending habits will begin to be forged for life in college. It’s also when making smaller mistakes with money (blowing an allowance on a handbag, for example) has fewer long-term consequences than bigger errors, such as signing a mortgage that their income cannot support.
- Start early, but don’t overstress: Toddlers quickly grasp that money is a tool of exchange, and by the time they are 8 or 10 they can learn that money has time value. Young teens may be mature enough to manage a yard sale. However, it’s important that parents take care not to share their financial stresses with young children. Few kids have the emotional maturity to process information about a lost job or market downturn. Above all, don’t expect children to be perfect with money from day one– for all of us, managing our financial lives is a “work in progress”
Thank you LPL Financial for the tips on instilling financial confidence in the next generation!