Your daughter begs for that tropical beach hat, but would she feel the same if required to pay by allowance? And could your son live without that youth fair souvenir if he knew it would come out of his savings for the Universal trip?
Experts advise parents to instill in their children as young as preschool the value of earning, saving and managing money and avoiding impulse purchases to increase self-control. And they can learn through everyday activities, whether saving for roller blades or serving the neighborhood fresh lemonade. So discuss family finance goals and values to engage children and foster healthy money mindsets and practices. And be sure to spend how you preach to maximize the impact with every clink in their piggy bank.
Build a Firm Finance Foundation: In NPR financial expert Jen Hemphill suggests monthly family money talks in which everyone can contribute to the family's financial goals. For tips read Money as You Grow from the Consumer Financial Protection Bureau. Teaching to save early is key so that it becomes a regular part of life, affirms Hemphill, starting with a piggy bank and later a "kid-friendly bank account."
Engage children in transactions from bill paying to car purchasing. "At the grocery store you can talk about why something costs more than others. Is it just the brand name? Better ingredients? To pay workers fairly? You can also include kids in budgeting. Do they want one pair of pricier shoes or two cheaper pairs?" advises Katherine Martinelli in Child Mind Institute. "Teaching children to be financially responsible early on will help them cope with challenges like setting limits, planning a budget and resisting impulse buys."
Also talk about income inequality and give them a healthy perspective on their $10 allowance when 719 million people live on less than $2.15 a day. "Understanding that not everyone has the same amount of money --and the same access to things money can buy like food, toys, clothes or even a comfortable home--will help kids get a sense of what's really important," it says.
In Goop, Beth Kobliner, who served on President Obama's Advisory Council on Financial Capability, reminds to spend by one's values and budget--not to keep up with the Gomezes. Be transparent without oversharing, such as explaining after a job loss the need to cook more at home. Help kids see the tradeoff in buying that after- school treat but saving less for that awesome Lego set. Discuss one's employment and the need to make money, stating where the salary falls generally in context to median income.
Earn Those Air Jordans: An allowance can teach budgeting. But be clear on the wage requirement, whether walking the pooch or achieving in school. "Talk with them about what to do with their money. Some parents split it into groups of saving, spending and donating. If they have a big goal in mind, like a pricey toy, they'll need to save up. Setting aside money to donate is a great way for kids to start thinking about values and how to live by them," says Martinelli.
Glenn Kurlander in a Morgan Stanley publication, recommends starting little kids with a "special allowance" for an outing like a baseball game where they make strategic decisions (ice cream versus popcorn?). For special purchases, he suggests chore- equity for kids to contribute a percentage " to invest in themselves in order to earn our investment."
Live Thy Values: Kurlander challenges parents to reflect on their values of money and its purpose, then discuss with children, asking what they think with questions challenging assumptions. And in consumption culture, "the way we live our lives is the model from which our children learn the most."
Martinelli offers good financial habits to model, like sticking to a budget, avoiding "retail therapy," and imposing a waiting period against impulse purchases. "When parents model good behavior early on, kids get the message that being smart about money is part of growing up."
The Children's Trust partners with Future Bound Miami, which offers Children's Savings Accounts to set aside funds for postsecondary education to eligible kindergarten students in Miami-Dade County Public Schools. Visit FutureBoundMiami.org for more info.