Money: good habits to teach children

Whether your kids are still in kindergarten or on their way to college, it’s never too early or too late to give them these 5 tips on budgeting, saving and investing.

How you manage your finances when you are with your children can be even more important than what you teach them about money. Brush your teeth twice a day, do not cross the street with red lights, eat your vegetables – if you want your children to develop good habits, they need to see you make smart choices. In other words: practice what you preach.

If you want your kids to develop sensible spending, saving and budgeting habits, they need to see you make smart choices. But beware, it will take time.

However, if you are committed and consistently communicate a clear message, you will instill good habits that will help your children become financially savvy.

1) Consider what to do with Grandma’s birthday present
Trying to get your kids not to waste their birthday money can be nerve-wracking. But rest assured, you are not the only one. “Are you sure you want to spend the money on this?” Is probably a phrase that all parents will pronounce at some point.

Remind your kids that just because they can afford to buy the toy, tennis racket, or the latest smartphone model, does not mean they have to buy it.

Show your children how keeping these small impulses in check can translate into much larger goals over time. Over the years, they will see their money grow rather than disappear into thin air and experience subsequent satisfaction.

2) Pocket money
Pocket money teaches children the value of money. Giving children a budget to stick to can help influence smart decision making and learn how to make their own financial decisions in terms of costs and benefits.

3) Long-term plans
At Morningstar, we are highly geared towards long-term investments. It can be a difficult concept for a teenage boy to digest, who probably thinks 10 days is already “long term”. But when your kids realize that planning ahead will help grow their money, then they will listen to you.

Remind them to set realistic expectations and find a strategy that works below market volatility. “Not checking your account balance every single day can be a good suggestion,” says Morningstar’s Carole Hodorowicz.

“If you manage your portfolio yourself, you are less likely to make changes that you may regret later, such as selling the entire stock component in the middle of the bear market,” adds Christine Benz, director of personal finance at Morningstar. And remember, the last 152 years of the US market have been filled with bear phases. Either way, the market eventually came and reached new heights.

4) Do not compare yourself with others
Christine Benz also gives this advice to children and teens: Do not compare yourself with others. Not everyone starts with the same means, and even if your peers start earlier, that does not necessarily mean they end up in front of you. Let’s face it, it’s a tough exercise to do, and social media certainly doesn’t help. Snapchat, Instagram and TikTok are full of influencers who show off their neighborly lifestyle or give questionable investment advice.

5) The importance of giving
When your children are old enough to earn a living, be sure to teach them to give. Whether it is a charity or a non-profit organization, in this way they will experience how giving is good not only for the recipient but also for the giver. Benz urges older children to pay attention to what she calls “the allocation of time on earth.” Find a balance in how you spend time and money so that it gives you joy and does good, “she concludes.

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