Tip to Help Teach Kids Good Money Habits (3 min read)

As back-to-school shopping season is ending, money may not be on everyone's mind — but that shouldn't us from helping our kids develop good money habits.
According to the 9th Annual T. Rowe Price Parents, Kids and Money Survey, more than two-thirds of parents have are reluctant to talk about money with their kids.  That's a mistake.
The same research revealed that parents who let their children decide when to save and spend their money on their own, reap some serious rewards. Those kids are less likely to spend money as soon as they get it, lie to their parents about what they spent money on, and even exhibit materialistic behavior like expecting you to buy them what they want when they want it.
Here is a tip to help teach kids good money habits

Establish the "Save - Spend - Give" Philosophy

Experts believe the best long-term money habits are the result of constantly dividing your money into three buckets.
  • Saving - this is money that you pay yourself to cover future needs.  This money will be invested to grow, used to make large purchases like a house or set aside for retirement.
  • Spend - this is money used to cover your current life and needs.
  • Give - this money is set aside to buy something for someone else or to donate to charity or church.
Here's what you do . . . 
Start with three clear jars on their dresser. One for saving, one for spending, one for giving. 
Some families — particularly when their kids are very young — split the money into thirds. Others put one-quarter into saving and giving and half into spending. 

Saving for savings sake usually doesn’t work. Your kids actually have to be saving for something. Help them figure out how long it will take them to get there by creating a goal chart — like a growth chart — broken into benchmarks (like days, or weeks, or for very young kids, sleeps — how many sleeps until I can buy those Pokemon cards).

Give the kids an allowance or let them do small jobs to earn money to add to the jars. It's important to have the amount of money they earn be proportionate to what they do to earn the money. So, avoid paying them $100 to take out the trash. This will help them value money better.

Savings Jar: The kids have been saving for something, once they reach that milestone, allow them to make the purchase . . . but make sure there is still some money in the jar. Don't allow them to completely "wipe-out" their savings. Congratulate them on their achievement.

Spend Jar: Require then to make certain purchases from their spending jar. You may buy only regular cereal and if they want Captain Crunch, they will have to pay for it. This will give them some purchasing freedom but also force them to make choices and budget their money.

Give Jar: Your kids can take out of this jar to buy birthday or Christmas presents for family, friends, teachers. They may want to donate to church or a charity. They will feel proud of themselves, after using their money to help someone else.

One Rule You Must Follow, particularly with young kids — because if you don’t follow it with young kids it’s much harder to do it with older ones. Don’t bail them out. If they buy something with their allowance or savings and have regrets, or if they lose a few dollars, there are lessons there.

Through this entire process, your kids will learn to budget, save for a major purchase, give to others, understand the impact of their money choices.  In short, they will learn good money habits.

Source: NBC News


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