Managing money can be a difficult task for anyone, but it can be especially challenging for young kids who have likely not had much experience handling their own finances. However, learning to manage money at a young age can set the stage for financial success in the future.
Many parents set up college funds when their kids are very young, but what about the birthday and holiday cash that kids sometimes get and immediately want to spend? What about the quick trip to Target where your kid begs for a toy that he doesn’t need but claims he will pay for it with his own money and “pay you back” when you get home? I am definitely not an expert in saving money, but I am working on teaching our kids the value of a dollar.
So, how can you help your kids make good decisions with their money and your money too?
The first rule of thumb is to provide the basic necessities for your child or what your child needs on a day-to-day basis. Anything else, he must buy with his own money, as those would be wants and things that are not necessary on a daily basis. Is this a difficult concept for kids to understand? Of course it is. Am I telling you not to buy your child anything at all? No, not necessarily. You can always reward your child with a toy or game that he wants. And, of course, on special occasions you can certainly buy gifts for your kids. I just think it’s important for kids to understand that their parents do not have to buy them something every time they are out shopping. Checkout lines can test you at times with trinkets at your kid’s eye level.
Another strategy for teaching your kids the value of a dollar is to set a spending limit for them. If you are willing to let your child spend your hard earned money or even their own money, give them a limit. If your child has $100, but you don’t think it’s a good idea for that to be the limit, set the spending limit at $20. Setting a limit also helps them understand taxes because that will have to be factored into their purchase. My kids get frustrated when they want an item that is $19.99 but their spending limit is $20 because after taxes, it will be over their spending limit. It also requires them to use math by adding up the price of multiple items to see if they will have enough. It forces them to make decisions and problem solve too, especially if they want multiple items but only have enough for one.
I also think it is important for kids to learn how to save their money. Yes, they may think it is silly for their money to just sit in their wallet, piggy bank at home or in an account at the bank. However, this can lead to setting financial goals as well as making good decisions with money. For example, when you are at a store and your child asks to buy another Squishmallow, but she already has more than you can count at home, you have to help her realize that it may not be the best use of her money. Is it something that she wants because it’s just so cute or is it something that will quickly be put away in a drawer and be forgotten about, especially as she grows older? Maybe a better use of her money is to save for a larger or more expensive item that will be used for a longer period of time. What is the long-term value of the item that your child wants? Young kids only see the cute, colorful things and just want them all!
Finally, my last tip is to consider getting your child a debit card, such as Greenlight. This is what we use with our 13-year-old. Many banks also offer debit cards for kids, but with our busy schedule, it was easier to download the Greenlight app and order a debit card that way rather than going to the bank. When your child is old enough, I highly recommend something like Greenlight. There is a monthly fee of $4.99, but you can add up to five kids for the one fee. You and your child must download the app and together you can track spending, set up a weekly allowance, set spending limits, and set goals for saving; it even has some investing options too! The card is linked to a bank account, but only the parents can add money to the card itself. There is a “request money” option for your child to request money to be added to their account if they are running low. I also like that there is a share link for friends or family to add money and it will go directly to the child’s account. If you have a teen or tween, I think this is a great way for them to learn how to manage money and to help make good financial decisions. Managing money can certainly be a challenging task, but it’s an important skill for kids to learn early on.
