When my daughter was six or so, she brought a toy to me to fix. When I couldn’t fix it, she told me it didn’t matter; I could just buy a new one. That was the moment I knew it was time to teach our child how to manage her money.
To her, having money was a given instead of something she needed to work for. We immediately gave her an allowance she had to earn and began teaching her how to save and spend appropriately. Over the last couple of years we have hit a few bumps in the road, but for the most part I have been really proud of our daughter and her saving habits. There are 7 main areas we have focused on in teaching our daughter about money.
These 7 principles will help set your child up for financial literacy:
1. Learn how to budget
As soon as your kids start earning their own money, they need to start budgeting too. The biggest part of budgeting is assigning a place for every single penny that comes into their account. That place can be a fun money account, but it needs a place. For our kids, their money looks something like this:
- 10 percent goes in long-term savings
- 10 percent goes in charitable giving
- the rest is fun money.
As they get older, or have specific wants, you can change that budget around. When my daughter wants to start saving up for something like a bike, we usually split her fun money in half and add half to short-term savings. This doesn’t replace her long-term savings or draw from it. This simply helps her save more for something she wants soon.
2. Properly manage credit and debit cards
Nowadays, there is no escaping plastic currency. It is so much better to embrace it and teach your child how to correctly use it than shun it and turn your kids lose when they are 18. I remember once in college I applied for a credit card because they gave me a free dinner. Yikes!
Greenlight, the smart debit card for kids, is the perfect way to introduce your child to debit cards, budgeting, and money management. The Greenlight Card and App truly lets your child take the wheel when it comes to their money, but places you in the passenger seat to help guide them on how to properly use their card. The Greenlight Card is controlled by apps on both you and your child’s phone/device. Parents can safely add money to their child’s account from their choice of funding source. Parents can also place limits on how much a child can spend in a certain store, or types of retailer. This gives kids the little nudges they need to keep them on track. Kids will love the automated allowance feature — ‘set it and forget it’ — so your kids always receive their allowance on time, with no fees for mom and dad.
With the Greenlight App your child can request money and send you messages all within the app. When your child has a request, makes a purchase, or sends a messages you’ll receive an notification of all activity.
The Greenlight Card enables you to approve specific stores where your kids can spend money. Simply search for a specific store within the app and add money to your child’s card instantly. Don’t want to set restrictions? Add money via the “Spend Anywhere” Greenlight and your child can spend that money where they see fit. You and your child will receive real-time notifications after each purchase.
Worried your child is going to lose the card? Don’t be! You can easily turn the card off at any time!
The Greenlight Card is available for both Android and iOS and costs just $4.99/mo per family, which includes cards for up to 5 children. From now until October 30, take advantage of a special 30-day trial to see if the Greenlight card is a good fit for your family and get a $20 deposit bonus* when you sign up after the trial.
*deposit bonus made approximately two weeks after free trial ends
The Greenlight Card is truly the easiest way to teach your child about debit cards and keeping to their budget!
3. Emphasize the difference between wants vs. needs
This is an incredibly important lesson to teach your children early on. Have them write a list of everything they use in the day — from their bed to their clothes to the video games they play after school. Have them place each item in either a want column or the need column. Let them know that wants are important too, but they can only be taken care of after the items in the need column are met, which includes saving.
A good way to practice this is to take your child grocery shopping with you. As you place items in the cart, have them tell you which column each item belongs to (want or need). For instance, bread, milk and eggs are all needs, while cookies are a want. It helps them recognize the things they can go without if they have to.
4. Educate your child on taxes
Taxes can be a hard concept to understand. If your child wants something that costs $10, they expect it to cost $10. Teaching the concept of sales tax is very important to helping them understand how far their dollar can actually go, and that they need to leave money in their budget to account for tax.
5. Money isn’t free; it comes from hard work
There is no money tree handing you and your partner your pay check every week, so don’t be the money tree for your kids either. Set expectations based on your child’s age and abilities. As your child matures, expect more from them and adjust their allowance accordingly. The more work — and the more challenging work — they do, the more their allowance increases. In our house, we have baseline chores, which are a set of chores each child has to complete before they can do extra chores that earn them allowance. We want our kids to know some work is just part of life. For instance, we don’t pay our kids to clean their room, do their homework, or practice the piano. Those things must be done before they can earn money.
6. Compare prices to get the best value
A really valuable thing you can teach your child is how to stretch their dollar. Sometimes you can afford to buy more of what you want by being careful when you buy what you need. Is the store brand of something 50 cents cheaper? That is 50 cents you have saved! Teach your child to watch the price labels at the store for prices per ounce so they know which size and brand is really giving them the best value when it comes to food. Teach them to look at other brands and colors for a better deal.
This is also a great way to teach your child about brands. Some brands are a better value because they provide higher quality, and are therefore worth a higher price. Sometimes generic items work just as well and can save money. Of course, this is sometimes a subjective value judgment, but that’s where your wisdom and experience can come in handy. How many brands do you use mostly because your parents used them? Helping your child understand brands can save them money and avoid falling for clever marketing ploys.
7. Hard work should be rewarded
If my kids have already earned their allowance for the week, I will create a list of extra jobs they can do and earn some extra money. These are often more difficult jobs, such as deep cleaning my car or cleaning out the garage. The lesson? If they’re willing to work hard, I’m willing to pay them for it.
A combination of these 7 ideas will make sure your child is on the right path to understanding their own finances. What money lessons have you taught your children?