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Allowance 101: How to Teach Your Kids About Saving and Spending

Learning how to be good with money takes time and practice, which makes it an important skill to pass on to your children.

Even when your kids are relatively young, they’re still capable of learning how to think about saving up for the things they want, spending responsibly, and earning money for a job well done.

And, according to the National Endowment for Financial Education, parents have a big impact on how kids learn about handling money - even bigger than school or other financial literacy outreach.

Not sure where to start with your own money lessons? Here are 6 tips for teaching your kids the value of saving:

1. Emphasize Waiting

As all parents know, kids aren’t programmed to wait. If they see a toy, they want it immediately. Hungry? They’ll stop everything to ask for dinner or a snack.

The trouble is, this developmental behavior can translate into poor money or social skills down the road. That makes it the parent’s job to step in and teach their child the value of waiting for what they want.

“An instance that comes to mind is when my four-year-old son asked if we could go to a local pizza and games restaurant that he loves,” personal finance expert John Schmoll, Jr. told Time.

“I said no, but went on to explain to him that it costs a lot of money for our family to enjoy an evening there,” Schmoll continued, reminding his son that they were about to go on vacation and needed to save money for the trip.

Find the moments in your life where you can talk to your kids about the need to save now - so you can spend later.

2. Budgeting at any Age

Whether you decide to give your kids a small weekly allowance or require them to complete chores first, it’s important to talk about what they’ll do with their money.

According to The Balance, even children as young as three or four can learn to budget - the budget just has to be visual.

“Set up three jars – physical jars that they can see and touch – and help your child deposit his allowance in these jars,” explains personal finance expert Paula Pant. “Label one of the jars ‘Saving,’ one of the jars ‘Spending’ and one of the jars ‘Sharing.’”

Not only does this technique help kids learn how to make decisions about their allowance, it’s a visual reminder to save up for the things they really want.

As your kids get older, help them make personal budgets. Can they justify their spending? Do they have enough money to buy the small things - toys, DVDs, music, games, candy - that they want?

Learn more about visual savings techniques at ThreeJars.com.

3. Set Small Financial Goals

Does your daughter want to save up for an expensive collectible? Do your kids clamor for new video or computer games?

Make them save up for the purchase, suggests Beth Kobliner, author of Get a Financial Life, a New York Times bestseller. But, as the parent, be sure to weigh in on your child’s goal, especially if it’s not realistic.

“Then it just gets frustrating, and it gets hard for them to wrap their head around,” Kobliner explained to Forbes.

“It’s really more about her being cognizant that she’s saving for a goal than, ‘Oh, I really need her to scrape together those $10 to buy the tutu’,” she added. “You want to set them up for success.”

The more you can tie the idea of desire to the idea of waiting and saving, the easier this conversation will be.

Personal finance writer Nicole DeCoursy advises parents to make written records of financial goals with their children - and then track where the money goes.

“Simply knowing where her money is going is a big step forward in your child's money management skills,” writes DeCoursy at Parents.

“Have her use a notebook or go on a computer to keep track of her money. Make a file (or use an old purse) where she can store receipts and statements,” she adds.

All the better if they can mimic the way you balance your own checkbook!

4. Talk Through Financial Decisions

Before your children are old enough to work, the idea of making every-day decisions about money may seem foreign to them. But it doesn’t have to.

Simply don’t hide when you think about money in the grocery store or at home, suggests Laura Shin at Forbes.

“When you’re shopping, talk aloud about how you’re making your financial decisions as a grown-up, asking questions like, ‘Is this something we really, really need? Or can we skip it this week since we’re going out to dinner?’” Shin writes.

Even talking through why you pick up one brand of peanut butter over another can help your kids understand how you think about money.

Once your children are 15 and older, you can start having more serious discussions with them about financial decision-making. Think college, saving up for a car, or, paying for big purchases - like computers or video game systems.

The most important financial decision to discuss, however, is most likely your family’s ability to pay for college.

"A candid conversation with your kid about paying for college needs to start as early as possible," Suzanna de Baca, the VP of Wealth Strategies at Ameriprise Financial, explained to LearnVest.

"If your kid is excited about or set on attending school outside your price range, have a conversation about whether that is realistic and what you as a family can do to make that happen," de Baca added.

If you’ve developed a history of explaining financial decisions to your child, this conversation should really hit home the importance of saving money, working within a budget, and avoiding debt.

5. Getting a Job

Once your children are old enough, encourage them to find part-time work that won’t affect their studies.

Summer jobs are great for this, although they’re harder than ever to come by, says reporter Ben Steverman.

“We've reached sort of a critical point where less than half of teens are working in the prime months of the summer,” Steverman told NPR.

“That means that if you're a teenager, fewer of your friends are going out and getting jobs. So you might not have the networks to really be able to find something out there,” he added.

Need help learning how to navigate the labor market? Check out this list of good summer jobs for teens from The Balance.

6. Credit Card and Debt Literacy

Given the statistics, it’s likely that your child will have to incur some amount of school loan debt when they head off to college.

Instead of brushing over the issue, take the time to sit down and talk it out, advises personal finance expert Suze Orman.

“Families that don’t talk about college costs, and the need to set a reasonable college budget, are families that make disastrous choices,” Orman writes at NBC.com.

“Kids take on too much student debt, or parents borrow too much, or even worse, raid their retirement plans or home equity to pay the college bills,” she adds.

Rather than waiting until it’s time for your child to pack their bags and move into their dorm room to discuss finances, make college financing a part of your ongoing discussions about money. Applying to more than one school with a good financial aid package or low tuition is also a must, says Orman.

Similarly, teens can develop bad working relationships with the idea of credit card debt if their parents don’t take the time to talk about how credit cards should be used.

All too often, bad credit card habits in young people develop because they don’t actually understand how debt works - and how it can affect the rest of their finances.

"[Since] debt is inevitable, we emphasize the idea of creditworthiness: good debt versus bad debt,” John Parfrey, director of the National Endowment for Financial Education’s High School Financial Planning Program, explained to Bankrate.com.

“After all, it's important to have an established credit record and credit scores,” Parfrey added. “When you buy a house, it's not as if you can just put down cash on the barrelhead.”

Talk with your kids about what kinds of behaviors lead to bad credit - and how living within their means can set them up for future success.

Giving your child an allowance of any kind is never a simple exchange. It opens up an entire conversation about how you spend, save, and earn money.

Don’t shy away from having these discussions with your children. Even at an early age, they can learn about these concepts in simple, fun ways that will - we hope - turn them into future financial wizards.

Images: Pexels, Pexels, Pexels, Pexels

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