Ways that you can Instil Good Money Habits in your Children

There is often a tendency for parents to keep their children ignorant of family financial affairs, believing that they will have plenty of time to worry about their own once they leave home. However, that is really doing them a disservice, because if they don’t understand how to handle money, they will struggle when out in the world alone. By helping your kids to understand the family financial budget as they are growing up, you will be providing them with a skill that they can use for ever more. There are a number of ways that you can help them. 

Don’t hide the fact that life is expensive

If you treat money with disrespect yourself, the chances are that your children will look upon them in the same way and will struggle to understand why they can’t have everything they want. Instead, explain to them the cost of things. At first, they may be too young to really understand, but as they grow up, they will begin to grasp the fact that money does not grow on trees and that it needs to be looked after carefully. Your children will undoubtedly ask you for things that you simply can’t afford; rather than buy it for them anyway, explain that if they really want it, then they must save up themselves, or wait until they have Christmas and birthday money.

Actively involve them in decision making 

As well as explaining that life is expensive, you should also actively involve your kids in deciding what is necessary and what isn’t. If your child wants to learn ballet and karate at the same time, but you can only afford to pay for one set of lessons, then explain that they need to choose. Take them shopping with you and show them the difference in price between different brands. When you are making up your own family budget, talk it through with them. Going on holiday is also a good time to explain budgeting. You can break down all of the costs involved and show them that a holiday is a real luxury.

Give them an allowance

From an early age, provide your child with pocket money, so that if they want small things, such as sweets and comics, they can buy them with their own money. If they run out, then they have to wait until the next week. As your child matures into a teenager, you can allocate them an allowance that covers their clothes, entertainment and anything else that they may need. Explain that this is what you can afford and that once they have spent it, then that is it. This will help them to understand that the family budget is finite. Your own income is the same as an allowance – you have to live within it and everyone else in the family needs to participate too.

Encourage them to save

Hopefully, part of your family budgeting will involve putting some money aside into a savings account. Even if you are only just breaking even, you can make a real effort to save loose change and put it towards something you and the family really need. At the same time, encourage your children to put their money aside. Help your child set themselves up with a bank account and let them check it regularly to see how their money is mounting up and how much interest they are earning. Ask them to put aside a certain amount of their pocket money or gift money. This way, they will begin to understand the importance of having money put aside for emergencies.

Teach them how to make a spreadsheet

A family budget can be complicated and, if you are sensible, you will have set up an Excel spreadsheet to keep track of all your income and expenditure. This may be far too complicated for young children to understand, but older ones certainly will. Even better, teach them how to make a spreadsheet themselves and break down their own income and expenditure. Serious budget-making will train your child to look after their finances; an excellent skill for when they have their own household.

Encourage teenagers to find part-time work

You may be reluctant for your teenager to work, either because you think there is plenty of time for that when they are adults, or because you would prefer them to concentrate on their school work. However, there are a lot of advantages to teenagers working; they can learn to budget their own money and will appreciate it all the more because they have earned it through hard work. Again, encourage them to draw up a budget and to put some of the money aside, either for when they go to college or as a deposit on their first house.

Explain about taxes and interest

Finally, one thing that many kids cannot grasp is the amount of money that is paid out in taxes and mortgage interest. Explain to them that you may earn a certain amount of money and you may own your own house, but that a large portion needs to go to the government in taxes and to the bank in interest. When your child realises just how much money goes out of the household, it will help them to appreciate why there is such a need for budgeting. Online resources are useful here; for example, moneyinstructor.com has some useful information for school children in the US. 

Provided that your children learn to appreciate money from a young, age, there is no reason why they shouldn’t be able to understand the family financial budget. Once they have mastered it, there is a much lower chance of them getting into debt later on.