Part of teaching kids about money is showing them how to spend responsibly. Even so, teaching about spending is only half of the finance education picture. The other half is teaching about saving.
Learning about saving is important for kids because it shows a legitimate and fairly uncomplicated manner of avoiding debt. At best, having debts can cause unnecessary psychological stress on your child. At worst, it can get them in legal hot water and make them lose physical items they truly need such as shelter. By including saving techniques in money education for children, you put kids in a good position to remain financially stable and avoid these issues.
Revealing Marketing Tricks
When kids are young, they respond easily to emotional cues because they simply don’t have enough experience to rationalize every decision down to the nitty-gritty details. Marketers know this. As you instruct your child in savings methods such as comparing prices before purchase, you show him the ways businesses seek to maximize profit at the consumer’s literal expense. Later on, understanding the corporate world will let your kid turn away from bad deals or things they don’t need.
Emphasis on the Future
For kids, spending is a lot about the here and now. Immediate purchase equals immediate gratification. With a child saving, however, spending can become about the future. He can make plans for purchases that will happen later on. This ability requires additional development and maturity and is essential not only to basic budgeting, but also for major strategies such as retirement planning.
Making Money, Not Your Kids, Work
It’s the age-old, traditional rule: Work equals a paycheck; effort equals reward. In reality, money can work for your child. For example, by investing savings wisely, your child might be able to double or even triple their investment, or at the very least, earn some interest. By showing your child saving and investment methods, you show her that financial operations can be more efficient. You also teach her to think critically about where they are putting her savings, because the return is not the same on all investments.
The Unpredictability of Life
Even if your offspring is a major Einstein when it comes to making plans and organizing funds, not even Junior can foresee every problem that can arise in life. For example, job loss can occur suddenly during periods of corporate downsizing, even if your child has been a good employee. You cannot eliminate all these variables, but you can show your child how to defend himself against them financially. By showing your child how to set some money aside regularly within the budget, you teach them how to prepare for emergencies without depending on credit.
Manipulating Cash Flow
Sometimes people know they have the money in their budget to buy something, but exactly when the money becomes available is a problem. For example, Bill A might be due two days before Paycheck A. When money education for children includes saving, kids learn they can dip into their savings not just for emergencies, but also to make a good budget work logistically. Understanding that money is truly available is a key to saying no to credit cards and other loans.