If you have children (or grandchildren), you give them a variety of gifts throughout their youth. But one of the greatest gifts can be that of knowledge, especially when it comes to money management. By teaching children the basics of spending, saving and investing, you’ll help them develop good financial habits – and those habits can last a lifetime.
Let’s look at some ideas for educating your children in these three areas:
- Spending – Talk to your children about your own spending. Explain that you get a paycheck regularly, but you have to make that money last, so you control your spending carefully – which means you can’t always get everything you may want. If you give your young children an allowance, or pay them for some household tasks, encourage them to set aside half for saving and half for spending. Tell them they can spend the money however they like, but be firm in letting them know that once it’s gone, it’s gone, and there won’t be any more until the next allowance or payment for work.
- Saving – Like the rest of us, children like seeing their money grow, so you could help them to accelerate their savings. For example, tell them that for every dollar they put into their piggy banks (or, better yet, into one of the “kiddie” savings accounts that most banks offer), you will match their contributions either fully or partially — under the condition they don’t touch their savings. If your employer matches your 401(k) contributions, you know it’s a powerful incentive to keep putting money away — and by matching your children’s contributions, you’ll be giving them a similar incentive.
- Investing – It’s really not that hard to teach kids about some basic concepts of investing – and you can have some fun with it, too. If you tell them they can own shares of companies whose products and services are familiar to children, like food or toys, they might be excited by the prospect. You can buy stocks and put them in a custodial account (UGMA or UTMA) for your children. Then, you and your kids can follow the progress of “their” companies, and, in the process, you can explain the forces (such as corporate earnings) that drive stock prices. In this way, your children will learn to understand the markets and, hopefully, develop a lifelong interest in investing. (Keep in mind, though, that if you do establish a custodial account, your children will take control of it once they reach either 18 or 21, when they can do whatever they want with the assets.)
By teaching your children about spending, saving and investing, you can help them develop the money management skills that can benefit them throughout their adult lives. So, don’t hesitate to begin the conversation.
Your local financial advisor can provide you with other ideas for helping your children learn about spending, saving and investing.