Financial goals are a great way to explain the value of money and fiscal responsibility. Teaching your child about finances can bring about multiple benefits for the future. It will teach your child that not everything is for free, and how to use their money wisely.
After implementing these few goals, your child will learn the value of money and the basics of money management. They will remember these tips as they get older and start making their own financial decisions.
Of course, the type of goals you set for your child will depend on their age. However, here are a few financial goals you can set for your child today.
Understand the Difference Between Needs and Wants
One of the roles of a parent is to take care of every one of their child’s needs. That is something that every child deserves. However, even though children’s needs are taken care of while they are children, they will still need to learn to make wise decisions as they get older. Your child may not realize that you spend money to take care of the things they need. Having a discussion about your child’s needs and wants can help them understand better. This will also teach them the importance of being financially responsible in the future.
Every child should grasp the difference between needs and wants early in their lives. But teaching them that lesson will require some effort on your part. Start by talking about the things they need versus the things they simply want. It might also be helpful to give them some examples of each. Make sure to emphasize that some things are more important than others – for example, food, clothing, shelter, and safety should be at the top of the list of things that need to be bought using money. Try to get them to understand that other things are also important but that they should not use up all of their money on them.
While “wants” like toys or video games are something your child might want, they should not come at the expense of meeting basic needs. Your child should then learn to prioritize needs and wants according to their importance. You can also explain that it is not always necessary to buy what they want.
Create a Budget
When your child wants to spend their allowance or their savings, it is a helpful tool to teach them to create a budget. Teach them how much they can realistically afford to spend each week for different categories like clothes, school expenses, and activities. They can even track their spending in a notepad if they want to. This will teach them a valuable lesson in money management. Later on in life, they will have to calculate how much they can spend on a specific item before they purchase it. Budgeting will help them manage their income more effectively, which will help them in the long run.
Set Money Aside for Savings
Setting aside money is a skill many parents want to teach their children, to show them the value of money. As a parent, you can put aside a certain amount of money each month into a savings account that is in their name. This can be done at any age.
When your child is older, they can become responsible for putting money aside in their own account. They can start at around 10 years old, although this may be different for every child.
Your child will learn how that money can be used in the future. Eventually, they can use it to fund something they really want. Whether it’s a car or a family vacation, they will be ready when the time comes to buy their own item.
There are different types of savings accounts that will contribute to building financial goals.
Set a Saving Goal
This directly ties into the previous point. If your child is setting money aside, discuss with them what they would like to save it for and what they will be able to buy in return. It will also affect how long they will need to save.
If a 10-year-old child, for example, receives $10 of allowance per weekend, they could save for 4 weeks to buy a Lego set or a video game.
Saving and budgeting will also teach your child to carefully consider what they want to save for. For example, let’s say your child was saving for a video game that they were able to buy after a month. Once they tried it, they realized that it did not have any features and they wanted a different game instead. Next time, they might do more research to find out exactly what they want before spending their money.
Understand Responsible Money Use
Children must know that money does not come for free and their guardian(s) have to earn it with hard work. It is also important to teach children how to save and spend responsibly at a young age. Many parents make the mistake of giving their children too much or too little allowance. If the allowance is too high, the child will not learn how to manage his or her money. On the other hand, if the allowance is too low, the child will not have enough money to learn to use it.
Teach your child that there are consequences to using their money unwisely. Setting the above-mentioned saving goals and budgeting is one way to do that. If your child overspends on their budget, they will not be able to afford the item they were saving for.
Responsible money spending can be learned from other aspects of life, and also observed from you, their parents. Your children might observe it by how you spend your budget in daily life and when you treat them with gifts. You can also learn more about how many choices are too many for kids, and use that information to give them their options when they pick what they want to buy.
One of the most important things, however, is to let your child learn and make mistakes. Explain that, ultimately, money is not the most important value in life. However, responsible money management is necessary to best utilize their time and resources, and use them wisely. Encourage your children to be good stewards of their resources by teaching them how to handle money properly from a young age. A helpful tip to keep in mind while teaching your kids about money is to keep it real and be open about the topics you are discussing with them.