Now, let's just clear the air...when I say 'Setting Our Kids Up for Success,' I am NOT saying 'Paying for Everything My Kid Ever Wanted' nor am I suggesting you need to 'provide' your kids with success in the form of cash flowing their college degrees. Now, if you have the finances to do that and you want to, that's wonderful! But, what I'm talking about here is teaching your kids about finances - providing them opportunities to interact with money from a young age and equipping them with tools that will help them succeed in the adult world. I have seven tips to share that I believe will help you encourage healthy financial behaviors in your kids and prepare them to be successful adults. So, let's get started!
This can be (and should be...in my opinion) done with even the smallest of children. Do mommy and daddy pay for everything? Nope. Are there limits to what we will buy even for our toddlers? Absolutely!
Here's one way we've set a boundary for our toddlers...
Our children know that mommy and daddy do not pay for the kiddy rides at the mall. If they want to take a spin on the carousel or ride the little ice cream truck, they know they have to pay for the rides with their own money. Because we set this boundary early on (and when I say 'early on,' I mean when our oldest child was only 3 years old), there is never begging or a fight from our children. If they ask to ride the rides, our response is always the same, "Do you have your money?" This simple question - and this boundary - make it their responsibility, not ours.
Now, does it take more effort on our part as parents then just asking this question? Of course! We take time to have conversations. If we are headed to the mall, we might ask them if they are interested in taking their money. We have conversations about how much they will need, how much they have, and what they need to save up in order to ride the rides. Our job as parents is about more than asking a simple question, but at the end of the day, our success with this ownership over our kids paying for the rides comes from setting boundaries since day one.
Obviously, with three toddlers in our home, I'm not going to pretend for a second that I know exactly how to raise teenagers. But, if I had to make an assumption, I would guess that the more you set boundaries with your toddler, the easier it will be to set boundaries with your teenager or even your young adult. Start setting boundaries early!
Learn to say "no."
I know the toddler meltdown in the middle of Walmart is embarrassing, but stand your ground. It's important to learn to say "no" to your child and what's a better time to start learning that then now when the requests are quite small? Setting these boundaries today is crucial to your child taking ownership over his or her own finances, and will get you used to the fact that it's ok to say "no" before the pricetags get much larger. (I know that someday the requests will likely be a bit steeper than a 50 cent ride at the mall.)
Why do we need to learn to say no?
Well, the word 'no' creates a boundary, and just like I already shared, these boundaries are important in setting your kids up for success. But, aside from simply creating boundaries and allowing your kids to take ownership of a purchase, saying 'no' is important in helping your child understand the limits of money. Most of us adults know that money doesn't grow on trees. However, we haven't always known this, but rather we have learned the limits of money throughout the course of our lives.
If we spend every year of our child's life, saying "yes, yes, yes," and providing for every request they make, what does that teach them about the limits of money? It essentially teaches them that money is 'limitless.' Money is no question because every request they've ever had has been fulfilled. You guys. Failing to say "no" to your child sets them up for failure in the adult world. If they've lived their childhood having each request (or even the majority of their requests) fulfilled, they are going to believe that this is how it should be in the adult world. And you know what? This creates a young adult that doesn't understand how to make a plan for their money and often ends up taking on debt (sometimes in LARGE amounts) to allow them to continue saying "yes, yes, yes" to each of their desires.
Include kids in the process.
Our little toddlers have learned so much about money and it's not because I went out of my way to sit them down and teach them a lesson on money. Rather, I simply involve them (and have involved them from a young age) in the process. One way I do this is by using the self-checkout lane at the grocery store. Our toddlers scan the items (which they LOVE to do), scan any coupons we are using, feed the cash into the machine, and collect the receipt (so I can get my cashback from Ibotta). I answer questions they have along the way, and we talk about things as we work side-by-side. I don't go out of my way to provide a drawn-out lesson. But, that doesn't diminish the fact that they are learning!
As kids get older, I encourage you to include them in the process of budgeting. Allow them to make some choices with how to allocate certain funds for your family during a month. Have them pay some of the bills. Be honest and open about your budget. And, at the end of the day, remember that more is caught than taught. Meaning, the financial behavior that you model each and every day for your children will have a lasting impact on them.
Allow kids to handle money and make purchases from a young age (within reason).
I am not suggesting that your three-year-old should get to decide how to spend a $25 birthday check from grandma. There are times when bigger gifts are given to our girls, and we as parents decide how that money will be used. What I am suggesting is that kids should be allowed to handle money and make purchases within reason throughout their entire childhood.
Experiencing this process of having money and then giving up money to purchase a specific item is important in developing their understanding of money. Not only do they learn more about money (how to count money, what sales tax is, etc.), but they also experience the emotions that come along with the buying process. They experience the shopper highs and lows - the high you feel immediately after buying the item and the low you feel when the cheap toy you bought isn't quite so exciting the next day. Experiencing these emotions and learning to handle money and make decisions about their purchases (when the price point is still relatively low) is such a gift to your child!
Encourage kids to give.
Giving is an important part of our interaction with money. When we give, we get to utilize our money for doing good in our communities and our world. We get to spread love, empower others in their missions, and support organizations we believe in. When we give, we acknowledge (whether we do this intentionally or not) that we are grateful for the blessings we've been given and recognize that we have more than enough to give to others. With this recognition of our blessings comes contentment, and contentment has a powerful, positive impact on our finances and our lives.
In addition to acknowledging our blessings and breeding contentment, these acts of generosity actually have a positive impact on our emotional well-being. You see, when we engage in even the tiniest act of generosity, we get a shot of oxytocin. Unlike dopamine, which is a short-lasting, highly-addictive chemical, oxytocin is long-lasting. This shot of oxytocin keeps a person going (and feeling good) over a longer period of time. Studies focused on generosity have shown that giving is often prompted by understanding another person's perspective. Simply put, giving is prompted by empathy. Increased levels of oxytocin have been shown to improve empathy. So, that feel-good hormone we experience when we give - that has a positive effect on our health - is only going to further fuel our desire to share what we have with others.
Encourage kids to save.
We live in a world very focused on instant gratification. I want it and I want it now, so I get it. In the real world, this want for instant gratification doesn't work well. In fact, it often results in massive amounts of debt. So, teach your children the power of a penny saved. Encourage them to save, and you can even reward them for doing so (like offering to match their savings for a specific item or paying them interest on their savings).
Another way we encourage our kids to save is that we make a savings option very accessible. When our kids earn money, they are first expected to give back a portion to God. (We haven't yet introduced tithing as being ten percent, as they don't understand the value of money, but this is our basic introduction to tithing.) Then, their two other options for their money include spending and saving. By simply making saving an option - making it accessible to them - we have witnessed our toddlers often choose to save their coins.
When that savings jar or piggy bank gets full, take your child to the bank and help them open a savings account. This is an opportunity to introduce them to further options for their money - allowing you to have conversations about interest and how their money has the power to grow if we are willing to be patient.
Let's take this 'savings talk' one step further...
Did you know that anyone with an earned income can invest in a Roth IRA? And did you know that by investing just $200 per month in a good growth stock mutual fund, your teenager could be a millionaire when they retire? These are the conversations we need to have with our kids! Let me detail for you the power of saving early (thank you, compound interest) so that you can share it with your kids.
If your teenager started investing in a good growth stock mutual fund (through a custodial Roth IRA) at the age of 14 and invested $200 per month for four years and then NEVER invested another penny, at the age of 65 their retirement investment would have grown to $1,276,924.16. Let's look at those numbers in greater detail: Your child would have invested just $9,600 over those 4 years, but thanks to compound interest totaling more than $1.2 million, your child's early investing would set them up for retirement. And, did you know that parents are even allowed to contribute to their child's custodial Roth IRA? This is yet another way that you could reward your child for saving...contributing to their retirement!
Give kids opportunities to earn money.
It's important for our children to understand not only that "money doesn't grow on trees," but also that with hard work comes earned income. While there are certain jobs that our toddlers are expected to do simply because they are a part of this family, there are other jobs available to them for which they are paid. It is totally optional for them to do these jobs. It's no skin off my back if they don't do them! But, because it lightens my load when they do these jobs, we compensate them for their work. They have known from a very young age that with hard work comes pennies earned. In fact, I wrote a blog post on this very topic just over a year ago when our two-year-old shocked me with her understanding of earning pennies.
We have a lot on our plate as parents and there's so much that we have to fit into just 18 short years. While teaching your child about money may seem daunting (especially if your own finances are a bit rocky these days), this is an area of their education that should NOT be neglected. Have conversations with your kids about money, provide them opportunities to take ownership of their purchases, allow them to make mistakes while the pricepoint is low, and include them in the process. Giving your child these experiences and equipping them with the tools they need will set them up for success in the adult world.