How to Teach Your Kids Money Management Lessons at Any Age
Parents have a duty to ensuring that their kids live in good health, receive the best education, and stay away from trouble before they reach adulthood. As such, they often find themselves spending a lot of money in order to guarantee some of these requirements. For instance, buying dental insurance for kids, or securing their future by investing in stocks for kids.
However, many kids from their early ages do not realize the type of commitment their parents make in order to keep the lights on, let alone pay for such things as life insurance for kids. As such, it is important for parents to start preparing their kids early by letting them understand simple money management skills that will teach them how to save money, as well as, making wise spending decisions.
Here is how you can guide your kids regardless of age to become better money managers in the future, and as they grow up.
Six years old and below
Generally, here we are talking of kids that have learned how to speak and can also listen to a conversation, so basically, the lower limit would be something like three years old. In this age group, the first thing you need to do is to let your kids understand that money does not grow on trees.
After this, you can help them become better money managers by using 2-3 jars labeled savings, spending, and or donations/giving. When they want to buy something, the spending jar will provide, while when giving presents to friends, the donations/giving jar will suffice.
At the age of five, your kids should also be able to understand about setting spending goals in which case, they do not just buy anything that they see in the nearest store. For instance, you can assist them in planning to buy a new toy every three months to add to their collection.
You can also peg their monthly allowances to performance in school by adding bonuses when they exceed expectations and reducing the sum when they fail to meet the target.
7-12 years old
This is the most important period when it comes to teaching your kids money management lessons. Here is where you determine whether your kids become better money managers in the future or impulse spenders that have no control.
The best way to teach your kids money management lessons in this age group revolve around work and return. This is the point where you let your kids know that when they see you paying for a whole life insurance for kids, or when they see you sampling a set of kids’ health insurance products, the money to pay for that is got to be earned first.
You can implement this by assigning household chores to them and compensating them after doing excellent jobs. Some parents also let their kids especially those approaching puberty to participate in community activities that yield returns as part of teaching them how to make their own money.
At this stage, you can also begin to teach them some basic savings techniques via bank accounts. This is where they migrate from the home jars to accompanying you to the bank. You can also share with them information about their bank account balances and what happens when they withdraw money, as well as, the potential for earning interest on their bank account balances.
In this category, you should be preparing your kids on how to manage their own finances once they reach adulthood. Let them know the existence of various investments products like stocks for kids. There are several brokers that also offer investing advisory that can guide them towards understanding the best stocks for kids.
At the age of 16, Warren Buffett had already made some $6,000, and that was several years ago. Having that kind of money back then indicates just how good he was at managing finances at a very young age. Well, we all know how being good at a very young age has helped Warren Buffett to be who is today. According to the latest Forbes rich list, Warren Buffett has a net worth of more than $60 billion.
It may not be ideal to dream having a net worth of $60 billion some 55 years from now as a 15-year old kid, but by teaching your kids these money management lessons can certainly set them on a better path towards becoming good money managers just like Warren Buffet, albeit at different levels.
In summary, while it important to focus on the specific lessons at various age groups, don’t forget that some of the lessons learned at a younger age group still be applicable in the latter age groups. For instance, separation of funds and the fact that money does not grow on trees.