This is a guest post from Brian Jenkins of BrainTrack
Teaching kids the importance of financial goals helps them become financially responsible adults. Establishing and achieving financial goals at an early age sets the stage for kids to save money for college and other of life’s major expenses. Financial goals can also help kids avoid the “instant gratification” lifestyle that usually leads to huge debt during the adult years. Achieving financial goals also gives kids a sense of accomplishment.
For young kids, saving up to purchase a desired toy is a realistic goal. Teenagers and tweens can start saving money for investments. A lot of kids enjoy saving money when they learn how compound interest works (Unfortunately, interest rates on savings accounts are currently very low).
Goals: Time Length
Financial goals for young children should be short in duration, perhaps only two weeks or so, and the goal should be easy to achieve. After they achieve their first objective they’ll be inspired to set and achieve another financial goal. As children get older the amount of time before a goal is realized should increase.
Provide your kids with a sufficient amount of money to learn about financial principles; however, don’t give them so much that they believe money is unlimited. Kids need to learn how to make decisions based on financial limits. They should learn to achieve their financial goals by living within a budget.
Money for the Financial Plan
Many parents use chores as a way to give children money. However, paying children to perform chores may unintentionally teach children that they have to be paid to help the family. This can diminish the importance of “helping other people for selfless reasons.” The “no pay for chores” strategy also promotes teamwork and responsibility. Parents can, however, provide an allowance for young children. When kids become old enough to get a job they’ll be excited to get paid to perform tasks.
One strategy consists of three financial objectives:
- Saving money to buy a desired item
- Reach a specific account balance
- Save money for a charity that helps underprivileged kids
Each week kids divide their allowance and place money into the three piggy banks. At the end of every month, count the money with your kids. They’ll be pleased to see how the money has grown. As kids get older the money should be moved to a real bank.
For long-term goals, such as paying for a special trip or buying an expensive item, parents can help kids determine their weekly savings requirements. Parents and children should both monitor the progress, and financial goals should be discussed from time to time. When they reach a goal, celebrate their success. The celebration helps demonstrate the importance of achieving financial objectives.
Parents Financial Goals
One way to show kids the importance of financial goals is to have financial objectives of your own and explain them to older kids. If parents live within a budget, their children are more likely to spend wisely when they become adults.
Brian Jenkins writes about a variety of education topics for BrainTrack.