What is a money habit? It’s a sustainable, repeatable way to you manage some aspect of your money. The money habits you keep – whether good or bad – can tell you a lot about your finances. You can see the results of your habits in your savings, earnings, and how much you invest.
We pass our habits along to our kids as they model their behavior off what they watch us do. That transfer of knowledge and habits can either be intentional or involuntary – it’s up to you.
If you want to set your children up to be successful adults, then a great thing to do is to help them establish good money practices at an early age. Children are ready to learn as early as age 3. Start with small habits like counting out dollars and coins, and work your way up from there.
There are a lot of tips and tricks that will help you achieve this goal as your child goes through every stage of development. There are also some pitfalls to avoid so you can steer your kids clear of bad money habits.
In this article, we are going to introduce strategies to handle good and bad financial habits and parenting advice that you can use to help your children at any age.
16 Money Habits Every Parent Should Share with Their Children
1) Create a Budget
To make sure that you are not over-spending, create a budget for your household. This is a great exercise for older kids and teenagers to understand living expenses and how to manage them.
Itemize all of the costs of living, from the rent or mortgage to the electricity bill. Calculate the average monthly price of each. Then you have a budget.
You can get kids of all ages in on this process by creating a mini-budget for them. For example, make a budget for a summer project or a micro-business like a lemonade stand. It’s all about the practice of understanding how much things will cost and spending and saving accordingly.
2) Provide Cash Flow
To understand income ane expense, your child needs some income. Give your children some money like a small allowance and help them manage it. If (and when) they mismanage it, help them understand the consequences and correct course without reprimanding them. It’s a learning process.
3) Set Up a Savings Account
One in 3 Americans have $0 in savings, and only a fraction have enough saved up to deal with an emergency.
Your savings account is the one in which you are going to save your money instead of spending it. Help kids understand the concept of a savings account by making your budget and calculating what it would cost if something didn’t go as planned. That’s what a savings account is ultimately for, but you can also make it more engaging by helping them save up for something more fun.
One of the easiest ways to save money is to set up auto-transfer. For example, if you are trying to save $1000 in six months to buy a new laptop, set up your account. It will automatically transfer $42 a week into your savings account.
You can teach a child about this by helping them set up a checking and savings account. Deposit their allowance into the checking account and show them how to schedule an auto-transfer. Tie the savings to a goal like purchasing a toy they really want so they can understand the concept more tangibly and treat it like a fun game!
5) Use Shopping Lists
Instead of going shopping without a list and buying things you don’t need right now, make a list of items that are important to buy and stick to it. This simple habit helps save money and stick to a budget.
Practice this with your kids every time you take them to a store. Get them in on the activity by making a list together. If they’re old enough to do basic math, talk about the budget for the shopping trip and give them a calculator so they can subtract the value of each item as you pick it up. Making (and sticking to) a list builds impulse control and helps kids understand the importance of a dollar.
6) Buy with Cash
Buying with cash creates a tangible connection between an item and its value. Psychologists have studied this concept and proven that when people pay with cash, they have a greater respect for the goods and services bought. Allowing your kids to fork over dollars to the cashier to pay for things can start at a young age and build an understanding of the financial exchange taking place.
7) Track Expenses Daily
Keep an eye on the expenses that you pay daily. Use an app or journal to keep a list of every purchase you make for a week – no matter how big or small. Have your kids do the same.
If they’re wondering where their allowance went, they may find the answer quickly reveals itself in regular purchases of sodas or video game add-ons. Seeing it all laid out helps visualize the cash flow so you can adjust it into your budget and shopping lists better.
8) Define “Bad” Money Habits
Understanding poor financial habits and how to avoid them is important, too. Discuss bad these money habits and break them before they start:
- Spending more than you earn
- Depending on debt to pay expenses
- Taking loans
- Not saving for the future
- Not having goals
- Thinking negative
- Blaming others or making excuses
9) Track What You Spend
Spending money without knowing where it’s going is a quick way to slide into financial distress. Keeping a budget and taking inventory of what you spend is a necessary habit to be responsible with your money and stay on track with your goals.
Create a self-auditing process and share it with your kids so that money becomes a concept that’s manageable and understandable instead of stressful and out of control.
10) Save With Intention
Even if it’s just a couple of dollars a month, saving is an important habit both mentally and financially. Spending every single penny you have earned can start you or your kids down a path of lack instead of abundance.
If an emergency comes up or an unexpected opportunity arises and you have no money saved to take care of it, then what are you going to do? Saving isn’t just about emergencies, it’s about opportunities as well. You don’t want your kids to miss out on opportunities or befall a tragedy just because they didn’t have some padding in their budget.
Decide on a reason to save and help your child set a savings goal to give them an understanding of this important concept.
11) Understand the Consequences of Credit
At the time of need, credit cards can look like a miracle. The truth is, more often than not they quickly become a burden and can create emergency financial situations all their own.
Paying interest on a purchase you made months (or years) ago really stings. You can help kids understand this concept by doing the math visually.
Take the price of a toy they want to buy now. Calculate how much that toy would cost if they paid it with cash in hand versus over a period of a year or two with an APR of 19%. Explain the difference: they can either save up and buy the toy for less money, or forego a chunk of their allowance for the foreseeable future.
Instead of teaching your kids to rely on credit, teach them to budget, and rely on cash.
12) Achieve a Goal
You don’t have to make a lot of money to manage it well. Having good management skills will help in achieving one’s goals. A person who has better money habits will be set up to have a better, more stable quality of life. Tie your child’s new financial habit to a goal like buying or doing something they want.
13) Model Your Advice
If you want your kid to learn good money habits, you have to show them practically. It’s important to model the behaviors for them in a transparent way and help give them tangible examples they can work through themselves. Experience is the best teacher, after all! Remember, children follow the same thing as their parents. Become a role model. Inspect your own behaviors and feelings about money. If needed, make adjustments.
14) Get Teenagers Involved with the Household Budget
Teenagers are on the precipice of independent living, so financial know-how is especially important for them to grow into successful adults.
It is your responsibility as a parent to help prepare them for the practical necessity that is managing money. Since teenagers are more mentally mature, they can handle more complex, real-world information to help them learn and prepare.
It may seem scary, but getting your teen in on managing the household budget is a fantastic exercise for this age group. Here are some steps you can take:
- Tell your kid about every expense.
- Inform them about the household’s monthly income.
- Walk through the monthly and yearly budget, plus any retirement and college funds that you’re paying into.
- Help your child open their bank accounts (checking and savings) if they don’t already have them.
- Every week discuss your expenses and tell them how you manage them.
- Give your teen tasks like grocery shopping or running an errand with a list that helps them develop the habit on their own.
- Research and share stories of financially prosperous people and what you can learn/integrate from their approaches.
15) It’s Never Too Late to Learn – Help Your Adult Children with Money Habits
So, maybe you got to this a little later in the game. Parenting advice isn’t just for parents of young kids – there’s still valuable information you can pass on to your children even if they’re adults. Here are some ideas for how to help your adult children manage money:
- Help them make a budget according to their income and expenses.
- Talk with them about money in a calm, non-confrontational way.
- Discuss their larger purchases and financial goals like buying a car or moving to a new city and make a financial roadmap to help them get there.
16) Break Bad Money Habits.
If your child has picked up some poor money habits, then you can use that as a learning opportunity. We all make mistakes with money at one point or another. Bouncing back is part of the process.
Identify the issue and why it’s a problem.
Talk about how this bad habit would really affect them in the future. Ask what they want to do – fix it or continue down the path they’re on.
If they choose to fix it, make a plan together for how to get through the problem. Be sure to include action steps that you can measure. Talk regularly about how the plan is going and measure their success. Celebrate when they’ve achieved their goal and un-done the problem.
If they don’t choose to fix it, then you may need to let them suffer the consequences of their financial mistake. The stakes during childhood and teenage years are usually much, much lower than in adulthood. Better they learn now than when they have a family of their own.
What if you’re the one with the bad habits? Look at it as an opportunity. You can learn together and even use yourself as an example of why it’s important to manage money well. Parents aren’t perfect, after all!
What better way to humbly show your kids how to do something than to learn and develop those great habits side-by-side.
Final Thoughts on Teaching Smart Money Habits to Your Kids
Money is a fundamental part of life. It’s how we obtain basic necessities like food and shelter, as well as indulgences like travel and toys.
Parents and caregivers play a significant role in shaping their children’s habits around money. Managing money is a reality that every adult must deal with. Because of that, it’s better to be more transparent with your kids and help them learn the skills to manage their money rather than letting them think it, “grows on trees.”
People don’t just spontaneously know how to manage money. If you help your kids understand that early on, then they’ll have a head start in life. Every parent wants their child to be equipped to live a happy, healthy life. Money management is simply a part of that journey.