How to Empower Your Kids to Make Smart Financial Choices
Check out these 5 tips for helping teach your kids about making their own smart money decisions.
It’s no secret that many Americans struggle with managing their finances. In fact, the National Financial Educators Council (NFEC) has spent years studying our money smarts through its popular Financial Literacy Test.
The most recent results from the NFEC test show that the average adult knows only about 70% of what he or she should know about money. But the NFEC is quick to point out that financial literacy comes from the right education. As a matter of fact, you can teach your kids critical financial skills. And you can give them the confidence to make good money choices in their lives.
Here are some steps you can take toward empowering your children with essential financial knowledge and real-world experiences.
- Teach kids that financial rewards come from hard work.
As an adult, you know that life doesn’t hand out too many freebies. In the workplace, it’s generally the high-performing workers who get bigger salary bumps, beefier bonuses and heftier commissions.
When it comes to your kids, your first instinct may be to offer them financial rewards as incentives for handling regular chores, treating others with kindness and applying themselves in school. Studies show however that paying kids for school work can actually yield negative results. And compensating kids for basic household tasks might deprive them of the understanding that family members have fundamental responsibilities to each other.
Instead, consider making a list of “extra credit” chores that come with pre-determined fees for successfully completing them. Maybe your child is required to clean her own bathroom without pay, but she can pick up $10 for scrubbing Mom & Dad’s bathroom or $30 for baby-sitting the younger kids.
- Help your kids set savings goals.
A major obstacle to sound financial decision-making is runaway impulse spending. So, while it’s important to teach your kids the value of money, it’s equally essential that they understand the concept of delayed gratification – that sometimes you have to wait to get the things you want.
Setting savings goals helps kids learn important financial skills adults need to plan for retirement and save for a down payment on a home. Specifically, they discover how to wait to buy something expensive, spend within their means and plan for a purchase with a savings strategy and timeline.
Help young children to set short-term savings goals for their money and by stashing cash in a special piggy bank or jar. Older children can hone their planning skills – and patience – by opening a savings account and tracking their progress toward a longer-term goal.
And make the process of saving exciting! Use an app to track your kid’s progress toward his goal. Circle the anticipated purchase date on the calendar. Celebrate the purchase date and praise your child’s resolve and self-discipline in achieving the goal.
- Guide kids in making purchase decisions.
When your kids have access to just a limited amount of cash, they can learn out of necessity to make choices in deciding what they’re going to buy.
And you can help them with those choices by encouraging them to answer these questions about their intended purchase: Is it well made, or is it likely to break quickly? Will I be able to use it for a while? Will I get bored of it quickly? Is it worth the purchase price to me?
Be sure to help your kids evaluate their decision-making process after the fact. Are they happy with their purchases? Would they do anything differently? What lessons did they learn?
- Allow kids to make mistakes in a safe environment.
So what if your child winds up making the wrong decision about a purchase?
It may be tough, but he can learn an invaluable lesson when he impulsively purchases something cheap that breaks or rapidly becomes boring. That lesson, however, could save him far more expensive misspending as an adult, when he might face serious consequences like debt and credit problems.
So resist the urge to rescind your child’s choice or – worse yet – bail your kids out after the fact. He'll learn from each small mistake now and hopefully avoid the big temptations down the road.
- Model contentment and charity.
It’s an unfortunate truth that there are people who don’t have the money and resources they need to survive. And there are almost always people who can benefit from your generosity.
To help impress these lessons, consider having your child commit a certain percentage of every dollar earned to a charity of his choice. You might want to set up a system of three piggy banks – one for saving, one for spending and one for giving.
It’s a great opportunity to learn about important causes and make meaningful contributions. Plus, by learning about the needs of others, your kids may learn gratitude and contentment with what they have.
It’s inevitable that even the most financially savvy adults will take a money misstep at some point. But you can limit the ones your kids will eventually face with some proactive steps today. As a parent, you can help give your kids invaluable money skills and empower them to make smart decisions now and in the future.