Kids & Money

Kids and Money Tip: No Spending Until You Prepare A Budget

Money is a foreign concept to most children until they are about 4 or 5 years old. It is at around this age they become aware that money has the ability to purchase things. However, most of their financial knowledge is focused on spending because that is what they SEE happening with money.

  • Mom gives money to the grocery store clerk and carries groceries out of the store.
  • Dad swipes his credit card at the gas pump, and it allows him to put gasoline in the vehicle.
  • Grandma gives money to her beautiful grandchildren (your children, of course) and you take the child down the toy aisle to buy something with it.

Since “spending” is what we see happening with money from our earliest days, it is what most children grow up knowing about money. For them, money equals spending.

The important financial principles of giving, saving, investing, and budgeting are not learned. Consequently, grown children leave the house knowing only that money equals spending. This is a recipe for financial disaster!

Here’s a simple thing you can do immediately to change that for your children (grandchildren):

Ask the child to prepare a budget for any money they receive – BEFORE they are allowed to spend any of it.

For example, my daughter receives money for her birthday. She and I count the money so we know exactly how much she has received, and then I confiscate it. Upon receipt of a well-planned budget, I release the money to her for use. Later on, I do a “check in” to ensure the money has been used according to the plan.

In a recent budgeting moment, my daughter was planning the use of $20. Her first budget had $2 for giving, and $18 for spending. I rejected it because there was no saving or investing. Her revised plan showed $2 for giving, $0.25 for saving, and $17.75 for spending. She gave the budget to me with a smile – knowing there was little chance of it being accepted.

I rejected it.

Her third try included giving, saving, investing, and spending. I released the funds to her.

Here’s the reasons I love this process:

  1. Teachable Moments This process creates space for “teachable moments” about money. It forces conversation about the importance of giving, saving, and investing. It allows us to talk about the “spender” mentality that we both share.
  2. Learned At Home Before my daughter enters the real world, she is receiving real financial knowledge that will set her apart. She knows what a mutual fund is and how it operates.
  3. The Pain of Wasting $20 is Less Than The Pain of Wasting $20,000 I want her to recognize the pain of poor financial decisions NOW when she is making $20 decisions so she doesn’t have to learn the lesson with a $20,000 purchase later.
  4. My daughter actually enjoys the process My daughter actually enjoys the process. It has helped her save a substantial amount of money toward her first car. She has financial margin. She knows her parents care about her.

I have my daughter use our FREE BUDGETING TOOL called the “Mini-Budget.” It’s perfect for kids.

My book, What Everyone Should Know About Money BEFORE They Enter The Real World, is a perfect resource for helping your child start out life with the financial tools and principles essential to life.

How I Changed My Child’s Life In 15 Minutes

I changed my new daughter’s life in just 15 minutes time a couple of weeks ago.

That’s quite a dramatic statement, isn’t it?

But it’s true.

How did I change her life?

  • Did I move?
  • Did I decide to change careers?
  • Did I do something super drastic?

Nope. In fact, I did something you could also do to change your child’s life.

Here’s what I did:  I opened my daughter’s 529 college savings account and established automatic monthly contributions. It took a total of 15 minutes. And with that one decision and accompanying action, I changed her life.

Think about it. Because her mother and father took action when she was ZERO years old, when she is EIGHTEEN years old she won’t have to worry about:

  • Paying for college
  • Graduating with a boatload of student loans
  • Whether or not she can even afford to go to college

The magnitude of her parent’s simple decision will still be felt decades from now.

Perhaps you could take 15 minutes of your time right now to open your child’s 529 college savings account and help change their life.

Teach Your Kids About Money – Money and Store System

NOTE: This method can work for children beginning at around age 3 – and can work through early teen years.

FunnyMoney

There are two key influences in a child’s life when it comes to money:

  1. Their parents
  2. The world around them

Who is more likely to help children have a healthy relationship with money? Ideally, it would be the parents!

Here’s a way to help your child understand how to use money and to make healthy choices with it: Create a Money and Store System

Money and Store System

  1. Create your own money (call it a fun name like Mommy Bucks or Reward Dollars) – Here’s some money I’ve made to help you (DOWNLOAD HERE)
  2. Establish a system where your child can earn this money
  3. Purchase 3 or 4 items you know your child would enjoy and place it in a “store” at your home
  4. Assign a value to each item
  5. Watch the system work – and use the experience to create “teachable moments” where you can have incredible conversations with your child about money.

Consider a parent with a 4 year old boy.

The parents create a currency called “Super Duper Money” (SDM for short). To earn this money, their child must complete special age-appropriate tasks around the house such as:

  • “Pick up pine cones out of the yard”
  • “Feed and water the cat daily”

A value of $1 SDM can be earned each week for each key task.

The store has 4 items in it – with varying prices to create short, medium, and longer term goals:

  • Gummy Worms (Price: $2 SDM)
  • Give food to the Hungry (Price: $4 SDM)
  • Legos (Price: $8 SDM)
  • Big Fire Truck (Price: $16 SDM)

As the child performs the tasks and earns SDMs, they can make a purchase from the store.

It’s that simple, and it allows the parent control the conversation. Imagine the incredible teachable moments that can happen:

  1. Saving  As they save money, they can accomplish more.
  2. Giving  They can learn to sacrifice a gift for themselves to serve those in great need. There’s NOTHING like seeing your child be generous!
  3. Delayed Gratification  The importance of saying “no” right now, so we can say “yes” to something more important later.
  4. It is a good thing to work!  I want my child to learn the value of working.

This post is part of a Kids & Money Series here at the wildly popular JosephSangl.com. Click HERE to read all of the posts in the series.

3 Lessons You Could Teach Your Child This Week

Here are 3 simple lessons you could teach your child this very week:

  1. How to intentionally give money away to help others.
  2. How to set a financial goal and establish a plan to achieve it
  3. The importance of saying “no” right now so later you can say “yes” to something more important

This post is part of a Kids & Money Series here at the wildly popular JosephSangl.com. Click HERE to read all of the posts in the series.

10 Things Parents Should Teach Their Children About Money

All parents want their children to succeed in life. I’m regularly asked, “How do I teach my children about money?” This is a great question, but we should start with another question: “What should I teach my children about money?” Once we determine the “what,” then we can focus on strategies for “how” to teach them.

Here are some key things every parent should teach their children about money.

10 Things Parents Should Teach Their Children About Money

  1. Your dreams should drive your money decisions.  Every great accomplishment began with a dream. Money will flow to a great idea and plan. Let your dreams influence the way you manage your money.
  2. Money will go farther if you prepare and follow a budget.  A budget ensures you generate maximum impact with all of your money.
  3. Be very cautious with debt.  Debt has led to the destruction of many people. Demonstrate how debt can help achieve dreams or produce income and net worth. Share how it has led to enormous stress and financial disaster.
  4. Investing allows you to capture the power of compound interest.  Compound interest has allowed many people to fund their wildest dreams. It allows the combination of diligence, time, and money to yield a tremendous harvest.
  5. The importance of insurance.  Insurance allows you to transfer risk thereby preventing a catastrophe from destroying everything you’ve worked to build up.
  6. Giving is living. There’s nothing more satisfying than offering a hand up to someone who can benefit greatly from such a gesture.
  7. Financial margin reduces stress.  Living life “on the edge” with zero savings is for the birds. Share how a simple decision to keep some money in an emergency savings account can prevent life events (like car breakdowns, appliance failures, or emergency home repairs) from causing tremendous financial pain.
  8. A financial education is just as important as your school education. You can have more degrees than a thermometer and still be broke. Be certain to gain a financial education while receiving your professional education.
  9. Every decision is not purely a financial decision. There are times you will have to make decisions because it is “the right thing to do” even though it might not make financial sense. Be certain to allow your core values and beliefs to drive your decisions.
  10. You can either pay now and play later or you can play now and pay later. And it usually is much more painful to pay later!

Anything you would add to this list? Join the conversation on the I Was Broke. Now I’m Not. Facebook Page.