Spending their money helps children understand its value!
A funny thing happens when children start saving. We see it repeatedly at School Savings™ where children make deposits into their savings or 529 College Savings account AT SCHOOL. They understand saving is a sacrifice because, after all, they could have purchased something they want with that money! Instead they have ‘chosen’ to save for something important: college or vocational school, a special purchase or for an emergency, perhaps! If you then ask them to spend some of their savings for the greater good, you shouldn’t be surprised to receive either dead silence or immediate push back. Why? They are starting to understand the value of money! Now, you know it’s time to come up with a strategy and plan for expecting your children to help pay for goods or services.
The first thing to determine is your children’s cognitive learning level. It’s fruitless to try to teach them something they are not ready to comprehend. Can they:
- use self-control appropriately
- plan for future events and delay gratification
- be attentive and remember instructions
- apply the concept of their saving to the need for the family to save, too
- perceive that wise money management skills now will benefit them their whole life
Depending on your children’s age, ability to work and your financial capability, determine whether you actually need the funds your child could contribute to manage your household or whether the contribution will simply be a learning exercise to help them with money management skills.
Next, are your children receiving an allowance, working for their money or being provided with money on a needs basis by you? You can see where this is going? Whether you ask your children to help pay for anything depends on many circumstances.
Involve your children in budget discussions!
Wants Versus Needs
To keep the rules simple and flexible you might start with two categories of ‘Needs’ versus ‘Wants.’ Things like snacks, sweets, designer label clothing, expensive smart phones, toys, cosmetics, most gas, and unnecessary school supplies or events should all be paid for at least partially by children. But what about college/vocational education? Is college a “want” or a “need”? And what about the extra car insurance required for your teenager to drive your car? Is the extra insurance for your benefit or theirs? After years of drumming the importance of saving into my three children, I offered them this deal for college when they were in grade eight and their future grades would be reviewed for college entrance.
If they wanted to go to college and their grades and SAT scores were in the top 5 percent statewide, I would pay for their instate undergraduate tuition, books, fees and housing expenses as long as they maintained a 3.0 grade point average. They would be responsible for their spending money. Alternately, they could not accept my offer and choose to join the armed services or simply graduate from high school and get their own place and car. I assured them if they chose the latter and were unsuccessful they could pitch a tent in the backyard until they got back on their feet! They all chose college and graduated. One is a Director at T-Mobile, another a TV writer in Hollywood with her own company and the last is a viticulturist with his own vineyard. All have a Masters degree. Because they were such good scholars, two of them received fellowships which I considered a contribution to their education and also reduced the amount I needed to provide.
Plan early for college!
Create A Long Term Plan
The salient points of a long term strategy for teaching your children wise money management and helping them plan for a secure future are:
- Open a saving account and a 529 College Savings account for each of your children. Insist on regular saving and sign them up for School Savings™ if it is available at your school. It’s Cool to Save at School!
- The saving account is for short-term needs and emergencies. The 529 college savings account will pay for expenses at two-year accredited vocational education institutions, too but can only be used for education expenses.
- Put a reminder in your phone to have a monthly discussion with your children about saving, spending and investing for their future. And, plan an ACTIVITY that brings home the fact that money doesn’t fall from trees.
- Give younger children $5.00 in cash and your teenagers a $25 prepaid debit card and let them start spending. When they run out of money, sit them down and discuss their thoughts, pre and post, on the experience. You’re sure to hear: “I thought it would buy more.”
- Bring up newsworthy financial topics at the dinner table now and then. “The Federal Reserve lowered interest rates, I wonder if that will affect our family and your college plans”? It will start them thinking even if you don’t know the answer yourself!
- Make a family budget with expense categories such as food, entertainment, housing, clothing. Estimate a spending ceiling for each category. A budget is invaluable in curtailing spending. If those “Wants” aren’t in the budget they can’t happen which makes the refusal less personal.
At least every six months, have a family meeting to discuss the family’s success in meeting its budget. Your credit cards should be paid off every month, if possible.
Talk to your kids about money!
My point is that you need to have a LONG TERM strategy and plan for your children’s ‘needs’, a plan that has been developed in cooperation with them, no matter how young. And, it all begins with SAVING. Saving is the foundation of financial literacy. It is the invaluable experience with managing their money which will secure their financial future and keep them from falling into credit card traps and bankruptcy.
Below is a video of a fifth grader who wants to be a homicide detective. She discusses the need for a college education and its cost. https://www.youtube.com/watch?v=ZnlYMSimm1M
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