Kids often view cash and gift cards as things that need to be used immediately. I recall how my now grown son spent all of his birthday money within two days after he had received it, often wasting it on things that he never used. When I voiced concern or suggested that he might want to save his money for a rainy day, he would tell me that it was his money and that he should have the right to spend it. I did not argue with him. Unfortunately, by the time my son was in high school, he never had any money to spend on events with his friends or to buy music downloads because he was so busy with school work. He has learned the error of his ways and is a responsible adult, but he still regrets not having listened to me earlier.
Fortunately, my older son eventually learned from his mistakes. I did, too. With my younger son, I began teaching him about saving and inculcating a much smarter money sense from a much earlier age. He listened and by the time he was in high school, he was able to enjoy having more of his own money than any of his friends. His new goal, however, was not to waste his cash but to by a condominium before he starts college so that he can live in his own place while he goes to school. Here are ten steps that I used with my younger son that, in general, I wish I had also employed with my older son.
Do not be free with cash with your young children
Kids learn very quickly if they will get a free ride and it is very hard to break that conditioning. If you buy a piece of candy or a toy to keep your child quiet when grocery shopping, the child is only going to get louder the next time you shop, until you buy him another item. Over time, the items will have to be more expensive or more numerous and you will be trapped between wasteful spending on the one hand, and a vocal and embarrassing argument with your child on the other. When a child learns that he has the power, the game is lost.
Most kids would rather play with you than play with a toy that you buy them
The next time your child asks you to buy something, tell him that you won’t buy the item but that you will play a different game or watch a movie with them when you get home. We played many games with our kids when they were growing up and they were much happier with the time we spent with them than with any money we ever spent. It also made us a much more closely knit family. If you do not have time to play with your child “on demand,” just let him know when you will play and keep to your promise. Kids can learn to be patient as long as you do not let them down.
Discourage your child from having wasteful hobbies
My older son went through a phase of collecting Pokemon and similar trading cards. I would not buy them for him (except at Christmas or his birthday) but I did explain to him that there would come a time when he really regretted wasting his money on cards that he ultimately threw away. I was not an ogre about it, but I did explore with him why he was buying the cards and the answer was generally because “everyone else buys them.”
After about a year, he was willing to admit that he did not really enjoy the cards and he stopped buying them. To this day, he does acknowledge that learning not to spend money on those cards was the first sensible financial decision he ever learned to make. Ultimately, you will often know your child better than he does. If he is wasting money, you need to talk about it with him so that he can learn from his mistakes.
In contrast, you should encourage your child to have productive hobbies
If a child has a hobby that he really embraces, it will encourage your child to spend his money wisely and to save his money to sustain the hobby. When I was a child I started collecting baseball cards because I could see that the price of the cards was going up every year. I collected until I got out of high school and then sold my cards to pay for a half a year of rent when I was in graduate school. My younger son collected Christmas village scenery and he really looked forward to setting up the village under our Christmas tree. He would save his money each year and then buy one village piece (usually waiting for a good coupon to appear in the Sunday paper before buying). He still uses and collects the village pieces to this day.
Emphasize activities that do not cost a lot of money
With my younger son, I also discovered that there are a lot of hobbies that do not have to cost a lot of money, but which can offer a great return. At an early age, my son started collecting sports collectibles. We would go to NFL training camps and spring training baseball games and try to get as many autographs as possible. He now has hundreds of autographs which would cost him thousands of dollars if he bought them today. Instead, he paid only for the items that we got autographed, most of which he bought very cheaply on eBay.
Enforce a savings regimen on your child
I told my younger son that I would give him $10 every week as long as he did not ask us to spend any of the money. I explained how banks worked and the concept of interest. We went to the bank every week to deposit his money and he enjoyed both the act of going to the bank and in seeing his money grow. When he had enough to put his money in CDs, we started buying CDs and he learned that different investments gave different returns. He also started putting more and more of his money into the bank (from birthdays, Christmas and odd jobs). By the time he was 10, he was getting more than $500 per year in interest and he realized quickly that without doing more work, he had doubled the value of his $10 per week allowance (which he also renegotiated to $15 per week — He also tried to start loaning money to his older brother at high interest rates but we managed to put a stop to that before it had even started)
Avoid Movie Rentals
Movie and game rentals are a huge cost. Even without late fees, trying to track return dates was always a pain. In our neighbourhood, the movie/video game rental store is about a quarter mile from the local library. We showed our kids that they could borrow movies for free at the library or pay for them at the video store. We also told them that we would take them to either place, but that they would have to spend their own money. The library won out.
We also did get a digital video recorder for our house and told our kids that they could record up to 10 hours of TV each. With a backlog of 10 hours of TV on hand at all times, and the library around the corner, they never had a need to rent.
Teach your kids to use the computer
Even my son who had a hard time controlling his spending embraced the computer at an early age. All of the tools that we, as adults, have learned to use to save money can benefit kids, too, especially when the benefits are viral in nature. Coupons, rebates, referral rewards and all other savings tools that you use should be passed on to your kids as soon as they are old enough to grasp the concepts. Don’t just find the deals for them. Rather help them to find them for themselves.
Involve your kids in household shopping
Make necessary shopping a family experience. Don’t just make your kids come to the grocery store with you. Make them a part of the experience. If you do it from an early age, they will learn to enjoy the process and it will also help them to feel like they are spending when they are not. Also, let them help you plan your meals and listen to them when they ask for a new product. If the product does not cost more than an alternative that you would otherwise have purchased, give them the satisfaction of trying the new product. I also used to let my younger son buy anything from the produce aisle as long as he promised that he would eat it. He learned to appreciate a lot of fruits and vegetables that most of his friends would never have touched because he was the one who was doing the shopping.
Don’t be a miser
Kids are kids. They will need some distractions and you need to help to provide them. Give them enough toys and experiences, within your means, so that you can credibly and honestly tell them that they “do not need that” or “do not need to do that” when they ask. Also, sometimes your kids will ask you for things that they actually should have or should do. When they make an intelligent decision, help them to pursue it, whether it is with their own money or with money from you.
Remember that the point of teaching kids to spend wisely is not to save your money, but to teach them how to spend their money. If you do not balance savings with an occasional indulgence, your kids will not learn from you and you will probably not have a lot of good memories to look back on when the kids move out.