I have a seven year old. She loves to spend. This is not something that has just started. When I took her to the stores when she was younger, she would ask to swipe and sign. She was between 2 and 3. This has not changed. She uttered her first word as we were walking the aisles of Target. This should tell you something!
So, as a financial advisor, how do I teach her the value of money and being wise as she spends?
If I don’t teach her, she will likely make some of the costly mistakes that we all have made.
Let’s use an example of her receiving a monetary gift of $100. I always make sure that she is involved in the process, as much as she can be. If I do it without her knowledge, I am not really teaching her – I am just doing it for her and she will not learn that way.
We give 10% to a charity. This teaches her to be kind to others in need. I want her to be less focused on herself – so she can truly see the needs of others and just how blessed she is. Now, she’s down to $90.
I move 50% to either her 529 College Savings Plan or her savings account. I started saving for her when I found out I was pregnant. Any monetary gifts she has received, have gone into one of these accounts. This leaves $40.
Now, she has $40 to spend how she wishes. But even then, I offer her guidance. As I shared, she likes to spend. If she asks for something that she does not need or has too many of, I tell her no. If she thinks it’s a must have, I allow her to buy it with her own money. When her money is finished, she cannot buy anything else until she gets more. She is learning that her funds are limited.
There are times when we are out at the store and she wants something and she has no money in her possession. I will then ask her just how badly she wants it, and if she would like a loan. She almost always says yes. I will then pay for her item, and ensure that when we get home, she pays me back. She is learning that a debt has to be repaid, and in a timely fashion.
These are just some of the things I do with my daughter as I am teaching her about finances. The things you do will likely be different or have a variation on this. Your percentages might be different too. The key to doing this is about being consistent and consistently having the conversation with your children.
Do you need guidance on how to do this? Let’s have a conversation. I guide both adults and children how to make wise financial decisions.