As a parent, you want to prepare your children to navigate the world confidently, and that includes the world of money. Instilling healthy financial habits from an early age will help set them on the path to being financially responsible children. But how do you know if you’re instilling those essential habits? Here are six tips:
1. Start Early with Age-Appropriate Financial Lessons
Nurturing financially responsible children should begin early in life. Even young children can grasp simple concepts about money. Introduce them to the concept of saving by providing a piggy bank to collect spare change. When they have enough change, let them make a purchase of their choice, whether it’s ice cream or a new toy. The act of saving teaches patience and delayed gratification, valuable lessons for both their financial journey and life.
As they grow older, you can begin to gradually introduce more complex financial topics, such as budgeting, the importance of longer-term saving for larger purchases, and distinguishing between needs and wants.
2. Involve Them in the Family Finances
We often think of finances as a source of stress, and therefore want to shelter our children from them, but children love to feel included. Of course, you don't need to divulge every financial detail, but sharing basic information about budgeting, saving for goals and managing expenses can be educational and empowering. This transparency allows children to understand the family's financial decision-making process and fosters a sense of responsibility.
The key to successfully involving your children in family financial discussions is to actively engage them. For example, maybe you choose a charity each year to support. With younger children, you could provide them with a few options to choose from. If you have older children, you could allow them to research and pick a charity; including reviewing the organization on a site such as Charity Navigator.
3. Set a Positive Financial Example
No matter how many discussions you have or strategies you implement, if you’re not setting a positive financial example, it’s almost impossible to raise financially responsible children. Demonstrating sound financial habits, such as budgeting, living within your means and saving for the future, sends a powerful message. If you’re struggling to implement these habits, it may be worth hiring a financial advisor to help.
While setting a positive financial example includes managing money responsibly, it also includes how you talk about money. A simple but important example, no matter the age of your child, is the use of want vs need. You need clothes. You want the latest style. There’s nothing wrong with making purchases that are wants, but when we make everything a need, it can make it harder for our children to learn to separate their own wants from needs.
4. Provide Opportunities for Earning and Budgeting
A great way to help your children appreciate the value of money is to give them age-appropriate ways to earn money. With younger children, opportunities may consist of doing work around the house. Older children might earn money outside the home, whether through babysitting, a paper route, completing work for neighbors or a part-time job. This experience not only helps them understand the relationship between work and money but also instills a sense of responsibility and work ethic.
As they earn money, encourage them to save a percentage, whether for a long-term or short-term goal. This is also an excellent opportunity to instill in your children the importance of giving back to the community. Encourage them to contribute a portion of their earnings to a cause they care about. Engaging in charitable giving nurtures empathy and compassion, helping children develop a broader understanding of the world beyond their personal finances.
5. Allow for Financial Mistakes and Learning
One of the hardest parts of being a parent is watching our children make mistakes. It doesn’t matter if they’re a toddler playing too rough and tumbling off the couch or a teenager who fails to prepare for a big test. Of course, we want to keep our children safe, but not giving them the space to make age-appropriate mistakes will only hurt them in the long run.
As children begin managing their own money, they will almost certainly make mistakes, such as overspending or buying impulsively. Admonishing them in these moments will likely only lead to shame and frustration. Instead, use these experiences as teaching moments. Guide them through the consequences of their decisions and help them develop strategies to avoid similar mistakes in the future.
6. Introduce Investing to Financially Responsible Children
As your children mature, introduce them to the fundamentals of investing. Explain how investing allows money to grow over time and the concept of compound interest. While you can start with simple examples, gradually delve into more complex investment concepts as they become more comfortable with the topic. You may even want to consider giving them a small amount of money to invest, which you can then track together. This gives you a real-life opportunity to talk about important financial topics.
The Takeaway
Raising financially responsible children is a vital aspect of preparing them for a successful future. By starting early, you can empower your children with the skills they need to manage money wisely, setting them on the path towards a secure and prosperous financial future. If you have questions about your financial strategies, contact us today.
This commentary is for informational and educational purposes only and is not intended to be legal, investment, or tax advice. The information was obtained from third party resources that Carnegie Investment Counsel deems to be reliable and accurate as of the date of this publication.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488
