Last week, I shared with you that kids form their money habits and beliefs by age 7. Our window to influence their relationship with money is small, and we need to start talking to our kids about money much earlier than many parents realize. I’ve already shared some tips on how to talk to kids under age 7 and today I’m going to focus on kids in the 7-12 age group.
As adults, we handle money every day and being able to make smart decisions with how use our money is critical to our long-term financial well-being and ability to find money happiness. If we can instill good money habits in our children at a young age, then we have set them up for success as adults, which is the goal of every parent.
Kids notoriously want everything they see, but they don’t need everything they want. And sometimes, upon further reflection, they even lose interest and no longer want the once highly coveted item. One of the most important lessons you can teach your children is to differentiate between a “want” and a “need”.
I would start by simply asking them if they know the difference between a “want” and a “need”. Their answers may surprise you and can create a lively discussion. One fun way to continue teaching your kids about wants and needs is to take them shopping with you. As you add things to your cart, play a game and have them decide whether it’s a want or a need. With older kids, you can even break it down further. Food is a need. But some things, like organic fruits and vegetables, I am willing to splurge on while other things I’m not. Share with your kids how you decide what you’re willing to spend extra on and why.
Success Tip: Be careful that you don’t make your kids feel bad about wanting things. We are always going to find things we want. The trick is to learn where “wants” fit the into our overall priorities and avoid going into debt for them.
Now that your kids understand the difference between a “want” and a “need” it’s time to have them set goals around their wants. This not only helps give their money purpose but also teaches them how to prioritize. Start by having your kids create a list of things they want then narrow the list down until they create their save, spend and share goals.
Success Tip: When your kids find things they want, ask them if the item is more important to them than their goals. Explain how buying it now means it will take longer for them to achieve their goals. In most instances, when confronted with a choice, the girls chose to honor their goals instead of whatever just caught their eye.
Budgets have a bad reputation among many. Some say they are restrictive, but I believe they give us freedom. The freedom to choose how we use the money we have. Most kids leave home without any real experience with budgeting—this is a mistake.
The girls started managing their back-to-school budgets last year. It was a great experience for all of us. It really helped them learn how to flex their decision making muscles, which is exactly what I wanted them to do. Lauren also managed her birthday party budget last year. She saw firsthand the costs that go into hosting parties, learned how to make compromises and most importantly saw that she could have a fabulous birthday party even on a budget.
Success Tip: Help your kids develop a pro-budget mindset and see that it can give them freedom. Have them own a budget, such as their birthday party, and allow them to list all the things they want at their dream birthday party. Most likely they will be over budget, which is good. Now help them figure out what is the one thing that they truly want and then start eliminating the things that really don’t matter to them.
I’m not a big fan of traditional allowance. In our home, I do not pay the girls for making their beds and cleaning up after themselves as that is part of their normal responsibilities as family members. However, I do believe children need a way to earn money.
In our home, I post a weekly job list and the girls pick which jobs they want to do. They can earn a little or a lot depending how hard they are willing to work. We have weekly paydays where we take out their save, spend and share jars and discuss their goals while I pay them. If they do a poor job, they may not get paid and if they go above and beyond, they could earn a bonus.
Success Tip: Help your kids develop an entrepreneurial mindset. You don’t need to be the only “employer” your children have. From a lemonade stand to babysitting or mowing lawns to creating a product or service, encourage them to find other ways to earn money.
Next Monday, I’ll share some important money lessons for kids ages 12-18.
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