Teaching kids how to manage money is very important and so far I have dedicated this site to helping parents do just that. However, many parents have said to me that this isn't enough. Whilst they want to teach their kids to be money savvy, they want to be doing more for their kids. They want to set them up well in life so they can afford their own education or buy their own house.
These parents are looking for ways to make some money on the side so they can help their kids when the time is right. Whether it be in addition to their full-time or part-time income, or whether making some money as a stay at home parent.
Being a parent myself I understand this desire, I want to give my children the best start in life so I am very passionate about this. Not only to earn extra income to further support my kids but also I think it is important that I diversify my income sources to reduce risk. For me it is not just about making extra money, it is also about protecting the income I make now.
Jobs demands are changing all the time. Redundancies are more common and you can't rely on a job for life anymore. For me, I have put the foundations in place to earn money from three different sources. These are:
Whilst all of these do involve some level of time committment, having income sources that are somewhat passive as well as your day job can help smooth out the ups and downs of the economic cycle and allow you the freedom to save for your kids without burdening you too much today.
Ultimately, by doing this, I am hoping I have the income necessary to help my kids, in addition to their own savings, not to have debt when they finish their education. Or when they want to buy a house or an investment property, they have the money they need for a deposit.
The information on this site and my future blog posts will not only be about ways to help your kids learn about money but also ways in which you can earn some passive income to have that little bit extra to help save for your kids.
Leave me a comment below if this is something you are interested in.
Those of you who have read my previous blog posts know I am a big supporter of teaching kids how to spend, save, invest and give. Even with all the craziness of Christmas, there is no better time to demonstrate these principles.
Whether it is giving to your favourite charity to support those in need or saving money received as a Christmas gift, knowing what to do with money is the important part.
Here are some easy, no fuss ways to take advantage of helping your kids become money savvy at Christmas time:
1. Make Money Jars in the Holidays
In the holidays, make jars and label them Save, Spend and Give. This is a fun art and craft activty that then can be used to help your kids manage their money.
When they receive money from doing chores, outside work or from gifts, get them in the habit of allocating a certain amount to each jar. I like to use 30% for spending, 50% for saving and 20% for giving. These percentages can be adjusted as you like or as your child grows and enters teenage years when they start to have their own expenses.
2. The Time for Giving
If your child has been putting money away for giving or you are teaching them that giving is one of the different ways to use money, there is never a better time to help those in need.
Almost every charity has a Christmas appeal which look for donations of food, toys, money etc. Your local community centre, hospital, church or school is also likely to be looking for contributions at this time of year.
Another way to give is to say to your child that for every toy they receive at Christmas time they have to choose one to give away to a child less fortunate. This helps your child to understand giving and receiving (and keeps the toy room under control!).
3. Give the Gift that Helps Teach Kids About Money
Give the gift that helps your child become more money savvy. Give them a money box if you prefer not to make one. But not just any moneybox, one that teaches them the principles I have been talking about. There are a few different types listed below. My favourite though is the Money Savvy Pig as it has the four compartments, Spend, Save, Invest and Donate in the one piggy bank.
4. Ask for Money Instead of Gifts
Knowing what to buy children at Christmas time can sometimes be difficult. A lot of the toys or things they want they get sick of within a couple of months. If this sounds like your child, and friends or relatives insist on buying them something for Christmas, why not say to give them money? Whether cash, so they can put it in their money jars or money straight into their bank account. While this may feel a little uncomfortable, most time the giver will be pleased it is going towards something they really want or something useful rather than something frivolous.
Your child can then determine if they want to spend or save the money received. Ideally, they should spend some and save the rest so they can purchase something of higher value in the future.
5. Save Money Shopping for Bargains
Whether you a shopping for gifts before Christmas or shopping in the sales after Christmas, planning ahead and searching for the right price can save lots of money this Christmas.
Many shops have sales prior to Christmas. Sometimes they are on only for one day or only on selected items so knowing what you want is important. Firstly, write a list of everyone you need to buy presents for and the types of things you want to buy them plus the total amount you want to spend.
Then start searching online for the things that might be suitable. Finding the right model, colour etc and knowing what the prices range from prior to buying them is really useful in knowing if you are getting a bargain. Then, wait for the right time. Starting Christmas shopping about 3-4 weeks in advance is worth doing to make some great savings.
Equally, buy gifts for the following year or Christmas decorations in the sales after Christmas. This will save you money for next year.
Borrowing money is a complex issue for adults and can end up being a very emotional problem for people who weren’t given good training about borrowing when they were children.
Whether a loan is on a credit card or for a house or car, there is pretty much no way to avoid borrowing money at some point in every person’s life.
As a result, learning to understand the ramifications of borrowing money should be started early in a child’s life.
Before a child even starts school, they can start learning this important concept. It’s too early to discuss borrowing money, so they can begin to learn about this topic by borrowing toys.
Explain to them that they can borrow a friend’s toy for just a short while and that they’ll need to return it. At first, start with very short periods of time, but eventually extend the loan to the complete length of playtime, always making sure that they return the toy when playtime is over.
Once they start primary school, you can start to transfer what they learned about borrowing toys into the concept of borrowing money. Stop at a store with your child at a time when you know they don’t have their pocket money with them. Make sure it’s a store where they’ll want to buy something.
Explain to them that you’ll be happy to lend them a small amount if they want to buy something and that they can then repay you as soon as you return home. You might even have them sign an IOU for the amount of money they’ve borrowed. The physical paper with their signed IOU will make the concept more concrete for your young child.
Once you can see that your child understands borrowing and repaying money from you, you can then move to explaining the more complex issue of borrowing money from a bank for larger items and paying interest on the loan. You can explain that borrowing from a bank is how you were able to buy your house or car.
Make sure that they understand that paying interest on a loan means that the borrower ends up paying more for the house or the car than if they’d bought it with money that they’d saved.
When your child is in high school, they are likely to want to buy electronic items and may find it difficult to wait until they’ve saved enough for the purchase. In this case, they may come to you for a loan.
If you decide to lend money to them, make sure that they understand how repayments will work. You can set up a repayment schedule online that you both can access. On the payment dates, meet with your child and open up the online schedule to log the payment in together so that there will never be a dispute about whether a payment was made.
It’s never too late or too early to explain to them the difference between good borrowing and bad borrowing. Good borrowing is when you borrow money for something you don’t have money for now but in the future it will likely go up in value or produce an income. Shares, investment properties and even your family home are good examples of this. See more on investing. Bad borrowing is when you borrow money for something you don’t have money for now but what you buy doesn’t go up in value or produce an income. Things like buying clothes or cars on credit is this sort of loan. Sometimes you just need these things now but always remember that there is a cost to borrowing so these things will end up costing you more in the long run.
One thing to pay particular attention to is pay day loans or cash loans / same day loans. Businesses like this thrive on those who need cash quickly so charge astronomical interest rates. It is sometimes hard to get out of debt with this sort of loan. These are best avoided if possible.
These types of exercises about borrowing will give your child the kind of training they need to understand how to deal with borrowing money in the real world as an adult. Remember that training your child about borrowing is just as critical as all the other lessons you give your child so that they will be a money savvy adult.
See more on financial literacy basics.
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Some Cheap School Holiday Activity Ideas
Do your children appeal to you for expensive holiday activities that stretch your budget too far?
Of course, you don’t want your child to be bored during holiday periods. You want them to enjoy their school holiday, but at the same time, you don’t want their holiday activities to break the bank.
You probably already know the kinds of activities that they like, but just to be sure, sit down with them to discuss how to approach the coming holidays. Find out what they’d like to do, and see if you can work around that.
This process will likely take several meetings. In your first discussion, explain to your child how much you’re able to budget for holiday activities, and ask them to make a list before your next meeting. Make it clear that the list should include activities that they would like but that fall within the budget limitations.
Hopefully, you can end up with a list of activities that your child will enjoy and benefit from but that will fit within your budget. To motivate them to choose wisely, you could promise that any money from your proposed budget that is not used will be put into savings for them.
You can prepare a list in advance and give it to your child to serve as a jumping off point. Below are some possibilities for your list.
Ways to Make Money as a Kid at Home
Learning how to budget as an adult is more difficult, so start your child out right by teaching him how to budget while he is young, and you will build good money budgeting habits right from the start.
These lessons are not necessarily easy for either the parents or the child, but when your child reaches adulthood and finds that he is able to manage his money better than his friends, he’ll have you to thank. He might not recognise that his proficiency with money is due to the lessons you gave him early in life, but you will have the satisfaction of knowing.
Include Your Child in Discussions about Your Finances
Lots of parents think that they should never discuss their financial situation with their child. The opposite is actually true. Bringing your kid into the family’s financial discussions will help to give him the context he needs to understand why certain purchases are not made or why holidays are not as elaborate as their friends’ trips.
You will need to determine what level of inclusion is appropriate for your child, but getting him involved even a little when he is young and then increasing his involvement step by step as he matures will give him the working knowledge he’ll need later in life when dealing with his own finances.
A Weekly Allowance Is a Good Teaching Tool
Some parents give a weekly allowance and some don’t. Sometimes the allowance is tied to household chores. Sometimes it’s not tied to chores but is considered a way of teaching kids to budget.
Keep in mind the value of giving an allowance as a method of budgeting for kids.
Simple Is Best for Small Children
Keep budgeting very simple when your child is quite young. The idea is to begin teaching the concepts of saving money for the future and prioritising how to spend it.
Many parents like to use clear glass jars for young children to put money into.
Get More Complex as Kids Get Older
As your child grows, you will find that including him more and more in financial decisions will deepen his learning about budgeting. Watch your child’s attitude toward money to determine how fast to bring him along.
You’ll find that teaching simple budgeting at an early age and then progressing step by step so that he can participate in decisions on bigger purchases will prepare him well for dealing with his own money as an adult.
We are all busy and there is always so much to be on top of, school lunches, homework, after school activities, work, dinner etc. Sometimes teaching your child about money is the last thing on your mind. However, as you know kids learn from their parents and whether you are intentionally teaching them or not just observing how you behave, say and react gives them a sense of what to do. Kids learn more from you then from their teachers and friends combined.
If you don’t take the time to teach your kid about money, they may learn from negative or outside sources, such as a friends, television or other family members who aren’t financially savvy. If you are already teaching your kids about money, this is fantastic and you are setting your child up for financial success in the future. Even if you are already teaching your kids or you are planning to, here are some of the not so good ways to teach kids about money that you may want to be mindful of.
1.Waiting Too Long to Talk to Your Kids About Money
Kids understand more than you think. Starting at age 3 isn’t too early and you can start with simple concepts like what is money, how money is used to buy things from the shops. Playing simple shopping games at home is great fun as well. See What to Teach Kids When.
2. Not Talking to Kids at all About Money or Leaving it to Someone Else to be Their Teacher
Some parents find talking about money to their kids taboo or not something that they should be sharing. Curiosity about money should be encouraged. Obviously, it is up to you what you want to share, especially if asked how much money you have or how much you earn, but these questions shouldn’t be shut down either. These are great segways into explaining how money is earnt from working, how value is placed differently on different skills and jobs and how saving and investing money impacts what you have.
Some schools and teachers teach about money or financial literacy in some form. However, it shouldn’t be the job of teachers to instil good money habits. Always encourage your child to learn about money at school but ensure you are also giving them a good education on the topic at home.
3. Lying to them About Money
Especially when kids are young you may think they won’t understand or don’t need to know. Children understand more than you think and making a habit of lying to them breeds mistrust in what you say or potentially stops them asking questions in the future. Easy traps to fall into is to say you don’t have money when they want a toy or a sweet but then you go and buy the groceries. It’s easy to say money grows on trees when you can simply explain how money is earned. We all do it but just be mindful that the truth and even a simple truth goes a long way to starting a child on the financial savviness journey.
4. Not Showing Them How to Manage Money or Bank Accounts
As your child gets a little older and they have a bank account. Show them how to use it. Gone are the days of visiting a banker at the local branch but simply showing them how to access their account online and showing them what everything means is a great first step.
Next, explain to them about money going in and money going out. Show them actual transactions of when they put money into the account and when money was taken out plus of course the remaining balance. If the account charges fees, explain to them what they are too. However, many bank accounts these days don’t have fees so it is worth hunting around if your account charges them.
5. Uncontrolled Spending
Kids learn from what we do and they use us as their role models. If we spend money without a thought then are stressed when bills come in or when something unexpected happens, this sets an example on how to manage money. Even just the view that you go to school, then university, then get a good job so you pay for a nice house and car needs to be challenged in today’s uncertain world. With more and more technology, different skillsets becoming less in demand and others increasing, companies choosing staff reduction as short-term cost savings, being in a good financial position to weather whatever life throws at you is good practice to have.
Teaching kids how to save and to have a savings buffer for those unexpected events is important. To think about what they spend their money on, not saying you can’t have fun and buy what you enjoy but put it in context of your financial situation. Showing how to manage and track their money through online banking or specific finance apps is also good practice.
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