Teaching Financial Wisdom to Your Kids
Q: My wife and I have done a better-than-decent job of saving and investing our money so far. We work hard and rarely use credit cards or spend money frivolously. But I’ve noticed that, as our kids mature, we’ve started some unnecessary spending for them on all the “stuff” that kids want these days.
My wife, too, has noticed how we’ve opened up our spending guidelines to indulge our kids. We talked and both admitted that, after all, we love the kids and want them to be happy. But we also want to do right by our children financially so they grow into responsible, financially savvy adults. How can we best teach them financial wisdom?
A: You’re not alone. Many parents experience these feelings. You want to give your children the best of everything and then after a bit of doing that, you realize it might not be the wisest behavior for your kids’ sakes in the long run.
However, there are plenty of choices you can make so your kids benefit greatly from your financial acumen:
Let them earn money for themselves. Household chores, lemonade stands, a newspaper route when they’re older – all these things give them their own money to manage and help them to develop a work ethic to earn money rather than have it just handed to them. Managing their own money will also teach them the value of a dollar.
Help them experience the benefits of saving and giving regularly. Start a savings account they can add to and see it grow. Let them save for more frivolous items themselves. Allow them to experience the joys of giving to others.
Involve them in the family budget. Take them to the grocery store and give them age-appropriate choices for items while staying within the budget.
As your child matures, let them manage a credit or debit card. Explain the importance of only charging what they can afford, paying off their balance each month, and making payments on time. Help them budget to allow for paying off what they charge. As they make responsible choices, give them more freedom with it.
From what you’ve shared, you and your wife are in the perfect position to give financially to your kids in ways that really count and will benefit them for years to come.
Consider these ideas to effectively give monetarily to your kids:
Start a 529 plan for your younger kids. These plans are state savings programs for your kids to go to college in your own state. The money you deposit into a 529 will build up over time and when your kid becomes college age, voila! The money’s already there. You don’t pay taxes on the money you put into a 529 plan.
Pay a grown kid’s college tuition directly to the college. Rather than transferring your dollars to your kid’s checking account, go ahead and pay the tuition directly. You won’t have to pay taxes on it and it’s truly more of a gift you’re providing.
Choose wise ways to give to your kids and help them incorporate financial responsibility into their life as a normal part of joyful living. It’s a skill that will benefit them throughout their lives.