This post is the 3rd and final post in a short series about teaching your kids good money management. If you haven't read the other posts yet, you may want to start with Part 1 - Teaching Your Child About Earning Money.
For a child (in fact, for most of us) spending is the most fun thing you can do with money. After all of the earning and saving your child has learned to do, they are surely ready to start spending. Teaching a child how to spend money wisely is one of the best skill-sets you can give to them.
Teaching Your Child About Spending Money Wisely
Perhaps the most important aspect of teaching a child how to be responsible with their money is getting them to understand the reality of limited resources. As we all know, you can’t spend the same dollar twice. A child who hasn’t learned how to prioritize their spending and give up things they want will carry these issues into adulthood. For an adult that can’t afford everything they want, there is one simple solution... Credit cards. Learning to prioritize now will give your child the confidence to know how to purchase the things they need and save for things they really want, not to put them on a credit card.
Put a child in front of Nickelodeon or the Disney Channel for more than 10 minutes and they’re bound to find a ton of great things they’d like to buy. Teach your child to have a healthy skepticism for advertising. Pulling back the curtain and explaining that these great commercials are only created to convince you to buy a product may (or may not) help them to be less persuaded by them.
Teach by Example
While it may not be the most efficient or stress-free way to shop, taking your kids with you to the mall, the grocery store or the used car lot and including them in purchase decisions is a great way to teach them how to spend money wisely. Talk them through your decision-making process. Explain what a coupon is, what a sale is and why you’re choosing the generic brand “O’s” cereal over the name brand. Teach your child to be reasonable, to know where to save a penny and to know where and when to buy quality.
Once they have some experience watching and participating with you, it’s time to put their skills into practice. Back-to-school time is the perfect time for this. All kids love to get new school supplies, clothes and shoes at the end of the summer. Give your child a fixed back-to-school allowance in cash and help them through the process. This will be much more exciting to them than buying groceries as they have a bigger stake in the outcome. When they have to choose between the nice new shoes or the cool new backpack they will begin to see the value in what you’ve been teaching them.
When a child is old enough to do things on their own (the movies, the mall, etc.) don’t give them money. Instead, raise their allowance and leave them in charge of managing their entertainment budget themselves. It may be hard for them to say no to a trip to the ice skating rink, but if it means they can go to that concert they wanted to see later on it will all be worth it to them.
No matter how many ideas you implement, the most important aspect of teaching your child how to be responsible with their money is making sure that YOU are financially responsible and providing them with a good example. Children are sponges and will always learn more from what you do then they will from what you try to teach them.