We tend to develop a relationship with money from the ones that raised us. What we know about money and how we feel about money. Some of us may not have learned much about saving or money skills and some of us may have learned some negative habits. Schools used to have classes on finances and how to budget and how to balance a checkbook, but in this digital age of swipe and pay, those classes are a thing of the past.
I agree that those classes in school should make a comeback because we have all seen that funny meme that refers to knowing about parallelograms during tax time. Here are a few tips to help your kids learn good habit about money and saving.
The Value of a Dollar
Teaching kids the value of a dollar can be as simple as a weekly allowance. Learning that you have to work to earn money. Simple chores such as keeping their room clean, unloading the dishwasher, and taking out the trash. Outdoor chores like garden work, pulling weeds, or walking the dog.
Expecting kids to pay for things with that allowance. Extra things such as toy or a game, or a trip to grab some ice cream. Set the allowance at a reasonable pay scale for the task. Nothing big so your kids know that when they want something fun, they understand the value of what they are spending and being able to think hard about whether or not they really want what they are about to buy. Teaching kids to make smart spending and money decisions at a young age goes a long way later in life.
How to Invest and the Power of Compound Interest
Another great lesson is the power of compound interest which is one of the key principles of investing. It is a simple as setting up an investment journal similar to a saving account book used by many banks back in the “old” days. You can set up the interest that the “bank book” is going to earn (example is a rate of 5% per month-5 cents for each whole dollar up until age 10). This time frame can be adjusted for the age of the child and be modified as the allowance and chores change.
Operate the journal like a normal bank and expect your child to do the math when they have any deposits or withdrawals. Having your child do the calculations in their journal teaches them math skills and makes for a fun keepsake where they can reflect back on later in life. You will sign off on those deposits and withdrawals like a bank would and is a great way to check on their math skills.
When it is time for the monthly interest payment, have your child calculate that as well. They should be able to see how their money grows when they learn to save and not spend. Allow your child to make mistakes if they choose to make a withdrawal and spend all they have. You want them to learn the value of saving and how compounding interest works if they choose to save and the consequences of not having much if they are always spending.
Set your own rules for your bank such as interest rate and criterial for an allowance. It’s a great way to teach your child financial responsibility and what it means to invest their money through hands-on experience. How you treat money and how you talk about money will be passed onto your kids, so let’s pass on some good lessons and have fun while doing it!
Brian Pahl of Nixa, Mo., is a Financial Representative with RPS Financial Group, Inc. He can be contacted at 417-877-8600 or [email protected]
