Building Good Financial Habits in Kids: A Guide for Parents and Grandparents
Parents and grandparents play a vital role in shaping kids’ financial futures. Discover how to empower the young ones in your life with tools and strategies for financial success—because the best time to teach smart money skills is now!
Teaching your children or grandchildren to manage money is one of the most important lessons you can impart. By instilling good financial habits from a young age, you prepare them to navigate life's financial challenges with confidence. Starting at age is the perfect time to start teaching them how to earn, save, budget, and even invest. These lessons are best learned at home, where mistakes are less costly, rather than later when they're dealing with rent, utilities, and other adult responsibilities.
Let’s explore practical ways to help your kids and grandkids develop essential money management skills, while also emphasizing the importance of earning money through meaningful tasks that build character and work ethic.
Earning Money: The Foundation of Financial Responsibility
Before kids can save or invest, they need to understand the value of earning money. Encourage your child or grandchildren to earn money through tasks that are meaningful and contribute to their development. Rather than simply handing out allowances, tie their earnings to chores, family projects, or even entrepreneurial ventures like pet sitting or tutoring.
For those who may not be able to fund their child's or grandchild’s financial goals, there are creative ways for kids to earn independently. Encourage them to create flyers offering services such as lawn mowing, dog walking, or helping elderly neighbors with errands. These activities not only help them earn money but also teach them the value of hard work and entrepreneurship.
Saving: Building a Strong Financial Foundation
Once your child or grandchild starts earning, the next step is teaching them how to save. Set up a savings plan where they set aside a portion of their earnings for future goals. This could be for something small like a toy or something larger like their first college fund contribution. Encourage them to open a high-interest savings account to watch their money grow over time. Platforms like NerdWallet can help you find the best savings accounts.
For older kids, introduce the concept of an emergency fund. While it may not be practical for a 10-year-old, a 14-year-old with a cell phone or bike could benefit from having money set aside for unexpected repairs. This teaches them to think long-term and be prepared for unforeseen expenses.
Budgeting: A Crucial Skill for Financial Success
Budgeting is at the heart of smart money management. Teach your kids and grandkids how to track their income and expenses, and show them how to allocate money for saving, spending, and giving. There are several tools available that make budgeting accessible for kids:
Greenlight: A debit card and app designed for kids and teens, offering parental control and monitoring. Greenlight also includes budgeting tools, allowing kids to allocate funds for spending, saving, and investing.
EveryDollar: A simple budgeting app with no attached debit card. It’s perfect for older kids who are ready to start tracking multiple categories and think more deeply about their spending habits.
Excel/Google Sheets: A basic spreadsheet offers flexibility and customization for more detailed budgeting. Templates are available online to help get started.
Paper and Pen: Sometimes the simplest methods are the best. Start with a Thirty-Day Spending Review to track where money goes before diving into a full budget.
Whichever method you choose, the key is consistency. Review the budget together at least monthly to ensure they’re on track and make adjustments as needed. This will help your child or grandchild see their financial strengths and weaknesses and learn valuable tips along the way.
Investing: Teaching the Value of Growth
Investing may seem advanced, but it’s never too early to introduce the concept. Platforms like Schwab Slices allow kids to invest in fractional shares of major companies, making investing accessible even for those with limited funds. This is an excellent way to teach kids about the stock market, ownership, and the potential for long-term growth.
For those less inclined to take risks with stocks, consider CDs or bonds, which offer lower-risk alternatives. These options still provide a modest return and introduce the basics of investing.
To further enhance their understanding, encourage your kids or grandkids to explore stock market simulators or watch educational videos like this one on how the stock market works. These resources offer hands-on experience and can make investing more relatable and engaging.
Financial education is a lifelong gift. By teaching your kids and grandkids to earn, save, budget, and invest from an early age, you’re setting them up for a future of financial stability and success. These lessons not only help them manage money but also build character, responsibility, and a strong work ethic. So, start now—because the best time to learn about money is when the stakes are low, and the opportunities for growth are endless.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by GW Financial, Inc. to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2024 GW Financial, Inc.