Teaching Youngsters Good Money Habits

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Although there is a lack of formal education for kids when it comes to smart money lessons, parents can provide guidance to help create a base their children can build on to succeed in life. Money is central to our everyday lives, yet it is often a taboo topic to discuss with children who we think may not understand or are too young to be a relevant subject.

According to T. Rowe Price’s 11th Annual Parent, Kids & Money Survey, nearly half of the parents said that they miss opportunities to talk to their kids about money and finances. And a quarter said that they are very reluctant or extremely reluctant to discuss financial topics with their children. On the other hand, half of the kids in the survey said they wished their parents did teach them more about money.

We believe, it is important that adults are integral in shaping a child’s view on the value of money and give them a strong grasp on financial principals. Here are a few ideas that we think could help:

Start early and often. By instilling healthy money habits at a young age, they can begin to develop the understanding that money is a limited & valuable resource. Let them see you make purchases in person to show them how money is effectively used. Using cash is a great learning tool as they can see the money being spent, but also allowing them to view the receipt with the dollar amount spent can create good financial patterns. With purchases becoming more commonplace over the internet, having them watch you as you shop for items, utilize price comparison tools, and make the transaction electronically will prepare them for the “digital” age of e-commerce.

Understanding Necessities vs. Luxuries. Children might believe “luxuries” such as Ultra HD TVs, Netflix, dining out, sporting events, travel, etc. are typical expenses. We want to differentiate the difference between items we need to survive (housing, food, clothing) in contrast to items that we don’t necessarily need to maintain a comfortable living. There are grey areas when discussing the concept but there should be awareness, for example, of needing a pair of shoes for school than wanting a pair of $200 designer shoes.

Allowance Options. You can expose your children to money decision skills by allowing them opportunities to earn money and have them decide on what to do with it. You could start simple by just giving them a weekly allowance. Cash may be king but with our ever-evolving transition to “plastic”, loading money onto a debit card could teach them the practice of tracking where the money goes. One idea is to give them a dollar amount proportionate to their age i.e. $7/week if they are 7 years old. A great way for them to understand the value of a dollar is have them earn the allowance. By having them complete chores, they can begin to comprehend the reasons why their parents go to work everyday to support their family. A strategy here is that if your child wants a particular item, for example, the $200 pair of designer shoes, they must complete “x” number of hours of chores to earn that money. All that hard work may lead them to develop better spending habits and further their understanding of the next concept…

Spending vs. Saving. Stressing the importance of saving money is a critical concept to teach your children. When they are young, having a piggy bank where they can stash change is an excellent start. Even opening a Minor Savings Account can help them understand the importance of setting money aside and will even allow them to watch the money “grow”. Sharing personal experiences as to how you saved up money to buy a specific item can reinforce good savings habits. A helpful strategy is the Rule of Thirds. This is a simple habit to get into and it works for everyone. The idea is that the child sets aside 1/3 of their money for savings, 1/3 for immediate use, and the other 1/3 can be flexible depending on the family. Some ideas could include money used for gifts, long-term savings (not to be touched), education, etc. Lastly, with smartphones becoming more popular for youngsters, they now have access to cool financial apps that can be helpful tools in building healthy savings habits. Some examples that are easy to install and to understand include Chime, Digit, Qapital, and Acorns.

Regards and thank you,

The Team at White Raven Financial


Advisory services offered through White Raven Financial Services, Inc. a Registered Investment Advisor in the State of Washington.

Brett Lathrup

Meet the Author:
Brett Lathrup

Brett Lathrup is a financial advisor at White Raven Financial. Prior to his transition to financial planning, Brett lived in Atlanta and worked with contractors and architects in the commercial building industry. Spending most of his days looking at building plans and sifting through construction documents taught him how to hyper focus on the details, no matter how small.