I am a father of 6, and as my children have gotten older, I have introduced them to the wonderful world of money and finances. To me, financial education is just as important as other forms of education. We homeschool most of our children and include a personal finance course as part of our homeschool curriculum. Of course, how you teach your children varies with their age – you wouldn’t use the same techniques to teach a 5-year-old as you would a 17-year-old, but the basic concepts remain the same. Here are 6 financial habits you might consider teaching your children in 2020.
Budgets Are Not Bad Things
The first habit you can start with is introducing budgets. The thing that I like to stress is that a budget is not something bad or a restriction. The way I have explained it to our kids is that a budget is a tool that helps you to not spend money on things that are NOT important to you so that you still have money to spend on the things that ARE important to you.
Of course, to start a budget you have to actually HAVE money. There are many schools of thought about whether it’s a good idea to pay your kids an allowance. On the pro-allowance side, it gives them money that they can use to start a budget and/or pay for various expenses. On the anti-allowance side, some parents argue that kids should not just be given money “for free” and that household chores should be done as part of the family.
Personally, we have opted to not give our kids an allowance, but we do try to provide extra chores that they can do to earn money. Regardless of where you fall on the allowance spectrum, you can also share the family budget with your kids. Especially as they get older, most kids are responsible enough to understand a family’s budget and keep it confidential within the family.
The Difference Between Needs And Wants
One of my grandfather’s famous sayings was “needs vs. wants”, so much so that I remember a family reunion as a kid where during a family talent show, one of my uncles got up and did a rap titled “Needs vs Wants”. Another thing that sometimes gets a bad rap but can be a useful tool is delayed gratification. Just because you think you need something doesn’t mean you’ll still “need” it tomorrow or next week. One thing that we do with our kids, is that if they want to buy something, we have them write it down and wait a week. That way if you STILL want it after a week, then it’s less likely to be one of those things that gets bought and then never used.
Start Saving As Much As Possible
Another great financial habit to teach your kids in 2020 is the power of saving, and more importantly, saving early. Thanks to the power of compound interest, the sooner you start investing can make a big difference. While most kids won’t have a huge amount to save or invest, building a foundation for good saving habits early on can make a big difference when they DO start getting those first real paychecks.
Pay Them In Cash
The world of credit, debit and gift cards can be hard for kids to grasp, so one thing that you can do is pay your kids in cash. My oldest son is 17 and just started his first job. His paycheck is direct deposited into our bank account, and every 2 weeks, we sit down together to pay him. The first thing I do is give him the gross amount of his paycheck, in cash. Then I work with him to start paying out from that money:
- I have him pay me in cash the money that was taken out of his check for the various federal, state and other taxes. I’m acting as a proxy for the government but I want him to understand (and feel with cold hard cash) the money that he is paying in taxes. He may not have a choice about paying taxes but doing it this way at least helps him be aware of it.
- He then sets aside 10% of his income to tithe to our church and puts that in an envelope to bring to church with him the following Sunday.
- We’ve encouraged him (and all of our kids) to save 50% of their gross income, so next, I have him calculate what 50% is, and then he pays that to me to put in his savings account. I keep that total in a spreadsheet and I regularly show him the amount so he can understand how much savings he has.
Don’t Carry Around Excess Money
After he’s paid that money out, with the remaining money (usually $80-$100), I ask him how much of it he wants to keep in his wallet and how much he wants me to hold on to in his “spending” account. Another habit I’ve taught him is that carrying around excess money is generally a bad idea. The old saying that money “burns a hole in your wallet” is one I’ve found to be particularly true. He understands that, so he usually takes out $20-$30 to put in his wallet to cover his expenses over the next few weeks and then we put the rest into his spending account to use for bigger purchases as needed.
How To Use Credit Responsibly
Finally, it’s a good idea (especially for older kids) to start learning about credit, what it is, and how to use it responsibly. There are financial advisors that say that credit is something to be avoided at all costs, but I am of the belief that credit has a place in a sound financial plan and it’s useful to know how to build your credit for larger purchases down the line. If you don’t teach your kids about credit, they may learn about it from others who might not have their best interests at heart. The key things to teach are that credit cards are not “free money” and to never use a credit card unless you have the money to pay the balance in full each month.