Tips on money management for kids
By Maria Montemayor
Posted on March 29, 2021
Some parents give their kids a small amount of money every week or month. Some parents only give their kids money on special occasions like their birthday or a holiday. Either way, children should develop financial skills while they are young in order to make good financial decisions when they become adults. The last thing parents would want is for their kids to go into debt in the future or make other financial mistakes. On tips about how to tackle debt, check out this article by The Newcomer.
There are many ways you can educate your children in money management. You can provide a good example for your kids through the actions you take and emotions you show surrounding money. You can set up youth bank accounts for your children and help them think about the impact of their financial decisions when they decide to save, spend, or share their money. Keeping track of money is a great way for kids to learn responsibility and good financial habits.
Your relationship with money as a parent
If you don’t have a good relationship with money, then your children are unlikely to form a good relationship with it as well. As a parent, you have to examine your own views surrounding money, since you don’t want your child to repeat your mistakes.
Do you spend money whenever you feel down and regret your purchases later on? Do you find it difficult to stick to a budget? Do you find that you tend to keep a tight hold of your income? If you answered “yes” to any of those questions, you may need to develop a positive and balanced view toward money.
Your children should understand that money is mainly a currency for necessities. It shouldn’t be used impulsively, irrationally, or emotionally. When kids ask for items that are not on your shopping list, instead of saying that you “can’t afford” those items, it is better for you to tell them that you are sticking to your shopping list. You can let your children know that your shopping list takes priority over impulse purchases that are unaccounted for (and not budgeted). If the items are not unreasonable, you can tell them to add those items to the list for next time.
Emphasize the intentional decision behind making a purchase instead of highlighting any lack of capital on your end. On the opposite side, don’t buy children whatever they want. They should not view money as dispensable but as something that requires careful planning and consideration.
Open a bank account for your child
The first thing you can do when your child is born is open a youth bank account for your child. Children often receive money as a gift from their relatives from the time they are born. If your kids do not receive any monetary gifts from relatives, then you can still put $20 in your children’s bank accounts every year on their birthdays as a gift. A bank account is a safe place to put money. As your kids get older and start earning money from awards and jobs, they can store it in their bank accounts. Once they are over the age of 18, they can invest their capital and put some of it in a Tax-Free Savings Account (TFSA).
Saving, spending, or sharing
You can introduce your children to the concept of saving, spending, and sharing their money at an early age. Since they would have most likely received some cash over the years from birthdays, you can let them know how much money they have, where it came from, how you saved it, and how much you will withdraw each month.
You can start off by withdrawing five dollars from their bank accounts each month and giving it back to your kids. Provide them with several options on how they can use it and teach them how to save, share, and/or spend it. You can tell them that they can save and share their money without spending it, but they cannot spend all the money, save all the money, or share all the money.
Begin by implementing a rule to help them develop the habit of saving and sharing their money. For example, of the five dollars they have, at least one dollar (20 per cent) should go into their savings and one dollar (20 per cent) should be shared, no exceptions. You can let them decide how to distribute the money they are going to share (give it to a homeless person, deposit it in your church’s collection basket, etc.). You want to encourage generosity and consideration for those in need. For their own spending, your children can purchase a small toy, candy, or other treat. You can give them clear jars or a piggy bank to store their savings.
Developing financial management
As your children’s savings increase, you can help your kids create a savings goal (e.g. have $20 in the savings jar to buy a t-shirt). Once their money goes above their savings goal, they can decide to make the purchase, but their savings should never be empty.
Whenever your children receive money, offer to place it in their bank account. Once your kids turn six, you can increase the monthly withdrawal to $10 and keep the same rules in place (with at least 20 per cent going into savings and sharing).
From the age of six on, introduce your children to the idea of keeping track of their own money (financial tracking). Give them a notebook in which to write the amount of money they save, spend, and share each month and have them practice basic calculations.
Once your children start working, you can trust them to manage their own bank accounts. Over the years, they will have developed financial responsibility. Now, you can talk to them about compound interest, the dangers of credit cards, and help them open up a savings account for bigger savings goals (like a college fund). Occasionally, check on them to see if they’re following the advice you gave them!