Money Wisdom: Growing Savvy Spenders

We have all heard the old adage, “money doesn’t grow on trees.” While most adults can attest to the truth in that saying, we can also take a lesson from nature when it comes to cultivating good money habits in our children. Planting the seed of financial savvy at a young age and nurturing it to maturity over time can yield budget-smart children who grow into mature, self-sustaining adults.

Plant the Seed: As soon as your child can count, he or she is most likely ready for a first lesson in finances, says Mike English, president of the Missouri Council on Economic Education. Shaping savvy spenders begins with easy basics that plant the seed for future money confidence, he says.

For Megan Lynch, whose daughters are ages 5, 3 and 10 weeks, understanding money is an important life skill. “I want my girls to know that being responsible with their finances will reap better rewards than the instant gratification of just blowing it all,” Lynch says.

Even the smallest spender can distinguish between wants and needs. Learning about financial priorities early will grow a more prudent spender, one who fulfills needs first and saves for wish-list items to purchase later.

Lynch’s daughters use a piggy bank to watch their money grow. “We are trying to teach them that saving up for something special takes time and patience, and in the end, they are always proud of how much money they were able to save,” she says.

Sprout the Conversation: As children grow, it is likely that they will become more boisterous about the things they want. With toy and food commercials and product placement, the media points children toward consumerism at a very early age. While many see this as a negative thing, it can also be a great way to start a conversation about savvy spending and saving techniques.

Allowance is a great tool for teaching kids as young as 4 years old basic budgeting skills. Make the connection between work and earnings by assigning chores that benefit the entire family, such as feeding pets or washing the dishes. Whenever your child wants something, refer to how much the child has earned and how much the item they want costs. This forges a mental connection between work and reward.

Wondering how much to pay? “Err on the side of frugality,” says English. “Keep it low enough so the child learns some discipline and learns to save.”

Consider providing enough allowance each week to cover one of your child’s needs, such as off-campus lunch, then add a little extra to go toward something they want, English says. If your child spends all of his allowance without considering his weekly expenses, avoid providing bailouts. Natural consequences such as brown-bagging lunch for the rest of the week will quickly teach him the value of planning and budgeting his money. If your child wants to earn more money, offer him extra chores for additional allowance.

Real-world budgeting advice and financial consequences can become valuable learning tools, even for very young children. Trish Batten provides some guidance for her 9-year-old daughter Kendall, but gives her the freedom to make her own decisions and feel her own consequences when it comes to spending.

“Recently she had a goal to save up for a pet, then got invited by a friend to the American Girl doll store,” Batten says. “She chose to dip into her money for American Girl items. Her savings for a pet dwindled significantly for what a 9-year-old is able to save up and she is just now realizing it.”

Encourage Financial Growth: Once your children enter middle school or high school, involve them in family budget discussions to help them understand weekly expenditures. Even if you wish your finances looked differently, make them available as teaching tools to your kids. When a child sees that money isn’t in the budget for the designer jeans she wants, she can save some of her own earnings to purchase the jeans herself.

By the time your kids are 7 or 8 years old, encourage them to put birthday money or left over allowance into a savings account in their name. With a savings account, children learn about interest and how their money can grow. To get her started, consider offering to match your child’s already accumulated savings. You may also talk to a banker about the best options for your child’s savings.

Cultivate Healthy Expectations: As soon as your child enters high school it is time to elevate the financial conversation to include lessons on the realities of life outside the nursery. Curbing unrealistic expectations by discussing the reality of job hunting and finances is important for young adults – not only to their financial health but to their mental health, as well.

Psychologist Carl E. Pickhardt, Ph.D., author of Surviving Your Child’s Adolescence, and a weekly parenting blog published on http://www.psychologytoday.com, often writes about the importance of expectations and their role in mental wellness. “For everyone, choice of expectations in life psychologically matters because these mental sets can have such powerful emotional consequences,” Pickhardt writes. “Thus recent college graduates who choose to hold unrealistic, positive expectations about their immediate prospects in life usually do so to their unhappy cost.”

Try addressing the concept of budgeting with a real-world example. According to Leah Ingram, a money saving expert and author of Suddenly Frugal: How to Live Happier and Healthier for Less, housing, transportation and education are the largest expenses facing today’s budgets. Talk to your young adult about how reducing spending in one of those areas will help them live comfortably on less income. Help your child make a list of potential expenses they may face after graduation. Put wants and needs in order of priority and teach them to budget around that list.

Any conversation about budgeting should also include a “real talk” about self-control, says personal finance expert Amy Fontinelle, who stresses the negative impact instant gratification has on financial success. “The sooner (a person) learns the fine art of delaying gratification, the sooner they’ll find it easy to keep their finances in order,” Fontinelle says. “Although you can effortlessly purchase an item on credit the minute you want it, it’s better to wait until you’ve actually saved up the money.”

Fontinelle cautions that dining out at restaurants, buying coffee or lunches instead of making them at home and going to downtown hot spots can seem alluring to a recent graduate or young professional. This is an excellent reason to have a conversation about how small purchases can add up quickly, she says.

A $5 coffee each day paired with a $12 lunch and a $35 night out with friends can quickly drain a budget and create big problems. Suggest money-saving options such as making your own coffee and using a fun “to go” cup, brown bagging lunches for work or school, or keeping a change jar to save money for fun nights out with friends.

Of course, no level of financial expertise is possible without a job to fund it. Help your young adult do some research about market trends, average wages, employment rates and industry outlooks. Introducing your teen or young adult to these terms and concepts early will help them make smart choices and prepare them for the reality of a competitive job market.

No matter what the ages of the children in your life, starting a financial conversation now will yield tremendous benefits. Plant the seeds for financial success now and watch them grow for years to come!