Financial Advice: “Budget your money.” “Save your money and live off the interest.” “Invest wisely.” “Build your retirement.” “Pay yourself first.” What do those instructions mean? How do you follow any of those directives? While you can talk to your children about money, creating an experience is much more impactful.
Experience is the Best Teacher
We all know that giving children money does not teach them about finances. Giving children an allowance is a great place to start. Let them know what activities and items they will be responsible for purchasing with their allowance and stick to it. They will feel a sense of satisfaction and maturity from being responsible for their purchases. They will learn to prioritize. It is always amazing how much children want until you require them to spend their money. If the item or activity is not important enough for them to spend their money, then it certainly should not be on your list.
Unfortunately, the allowance does not give children the tools they will need as they grow into young adulthood. It gives them no sense of the fact that what they want to purchase now is only a fraction of the expenditures they will have in the future. It fails to address that they will have to pay for necessities and unexpected expenses.
Allowance only teaches how to prioritize between items they want now. It feeds into the idea of instant gratification. Mini Money Management is an App that creates a home economy to allow children to experience the real world.
When children are required to pay for items they want now as well as save for events or items in the future, it teaches them critical thinking and problem-solving. When children are required to pay for expenses, it makes them aware that there is more to life than just spending money on fun activities.
Difficulties and Struggles Facilitate Growth
The most impactful lessons come from failures, difficulties, and struggles. Giving children everything they want does not teach a lesson. Being required to forego an activity or event because they do not have enough money, will teach them
- How to handle disappointment,
- How to save and plan for the future, and/or
- How to otherwise become resourceful: finding discounts or ways to earn money.
They will grow in their confidence, knowing that they can handle disappointment. They will learn that it is within their power to take control of their situation and make decisions and take action to meet their own wants.
Have High, Attainable Expectations Inspire
If you let your child know that you have high, attainable expectations of them, they will rise to the challenge. If you show them that you have the confidence in them, it supports the confidence they will find in themselves. Instead of buying everything for them, let them know you believe that they can save to get what they want. Help them figure out how much they need to save over what period of time. Each time they reach their savings goal, their confidence grows more.
Natural Consequences Inspire Self Reflection
If your child fails to save enough money for the activity or the item that they want, let them experience the natural consequence of not being able to participate or not having the item. If they choose not to save their money for the things they want, they will be forced to examine their behavior to determine how to do better the next time. They will not be able to blame you.
Giving them the money impedes their growth and understanding of managing money and sends the message that you don’t believe they can do it. Are you prepared to rescue them for the rest of your life? There may come a time when their mistake is too big for you to rescue them. Let them experience the disappointment and gain the understanding when it is a $50 video game, not when it’s a $50,000 car.