- Do you think it’s too early for your nine year old to track his/her finances?
- Do you feel guilty of burdening them with money decisions early in life?
- Do you think they’ll learn to manage money later in life like you did?
If the answer to any or all of these questions is “Yes” then might want to think again!
In the last decade or so, we’ve seen economies reel with recession and unemployment. A lot of it has been attributed to poor management of economies and laxity in taking corrective measures while the crisis could have still been averted.
If anything, this economic environment of uncertainty across the globe has made us realize that it is imperative for households to have a pool of savings to fall back on and to be more aware of their financial health at all times.
Summer months are a great time to start kids on learning new skills. Being away from school helps them focus on a new skill with greater enthusiasm and focus. Our 4-year old has just started tennis lessons and is keeping a keen eye on the French Open. **laughing**
How about this summer you help your child learn a new skill “tracking finances”?
Here are five simple concepts to teach kids money management or tracking finances in 30 minutes or less this summer:
What is their total income?
I recommend starting your kids on a weekly or a monthly allowance if you haven’t already. It helps with the concept of regular income and also how to manage it. The first step in helping your kids keep a track of their finances is to help them ascertain their total monthly income. It could be the allowance that you give them, any errands that they might run for the neighbours or any other source of income howsoever small.
How much do they want to save?
This is a great opportunity to instil the habit of saving in your kids while they are still young. A simple rule of thumb is to save at least 10% to 15% of whatever one earns. You can also encourage them to save some amount to give, help and share.
Do they have any other financial goals to save for?
A great concept to learn early in life is to spend what you have and not what you will have.
It is an important concept for children to understand that credit can get you in a spiral of debt very easily so one should avoid credit as much as possible. Of course, there will be instances where credit is the only option like buying your own house on mortgage. However, for most of our needs we can plan our purchase and save for it instead of paying hefty interest rates on our credit card.
So, if your kid wants to buy the latest release on the Xbox game catalog, have him plan to save for it or pick up an extra errand to pay for it. It is a good idea to put aside another 10% to 15% of the total pay every month for financial goals like these so that you don’t always have to defer their purchase till the time they have enough cash saved for it.
What is their weekly spending capacity?
In reality, only 70% to 80% of what they earn will be available for them to spend.
For instance, if your child earns $100 every month including his/her allowance then $15 must be kept aside for medium to long term saving and also for giving, helping and sharing. Another $15 must be kept aside for short term financial goals like the latest Xbox game or a latest gizmo. The balance $70 is what should be kept for spending.
Breaking it down further into weekly spend would let them know that they have approximately $18 to spend every week. This will help them have a spending limit in mind to adhere to.
What is their reward?
Most of us provide our kids with a structure when it comes to learning, everyday routines, and sometimes even play so why not do the same, when it comes to teaching them a critical life skill like money management.
Even adults struggle with keeping up with their budgets and spending habits so never forget to reward your child for meeting his/her spending budget. Surprise them by paying for their next big purchase and helping them save that extra bit more.
These simple concepts can help a child understand that for most of us in life, money is finite and needs to be treated with respect, and also that no matter how much we earn we should not only save for our future but also not forget to give and share with others.
How do you teach your children to track their finances? How will you teach kids money management this summer?
Photo Credit – Carissa Rogers