Smart Money Habits to Pass Down to Your Kids

When I was a little girl, I remember receiving my first piggy bank. It was very heavy and made of metal. I remember slipping coins and bills I found or earned $1 at a time into the tiny slot on the back. I was never great at saving, and my piggy bank was reusable meaning you could open it and take money out in case of an emergency. I always found emergencies that required draining Mr. Piggy Bank early. As I got older, my mom helped me create small budget envelopes for my allowance and money earned from chores and odd jobs. I’m thankful for the groundwork set by my family to teach me about money. I didn’t always listen, and as an adult I developed a temporary allergy to budgeting, but the lessons I learned as a kid stuck with me. When I was ready, I began utilizing those nuggets of wisdom to transform my financial life and take back control of my money.

Kids are sponges, we have heard that many times, and it’s true! If you model good financial habits and share appropriate information with your kids, they will pick up on the importance of smart financial choices which can shape their future with money. The first step is to open up communication with your child about money.² It is common for people to feel a little awkward when it comes to talking about finances, but open communication with your child about the important role money plays in our lives is  a key to their future success. Discussions lead to opportunities to model great behavior, learn from mistakes, and set up habits that your kids will take with them into their future. After opening the line of communication around money habits, where do you start?  

Money 101: Set Goals

Setting money goals is a great first step for kids no matter their age. SMART Goals¹ are a fantastic way to present goals and to make them achievable. The idea behind SMART Goals is that the goal will be specific, measurable, attainable, relevant, and have a timeline. These are great concepts to instill in kids early on. For example, if working with a child under the age of ten you can work through a SMART Goal in just a few simple steps:

1. Specific: Help your child pick a toy or game they’ve been eyeing and decide to help them save enough to purchase the item.
2. Measurable: Find out how much the item will cost (with applicable taxes and shipping) and set their financial goal.
3. Attainable: Discuss with your child how to pick a reasonable goal. A new gaming system likely isn’t a great place to start as saving enough may take a long time. Help them choose a goal they can accomplish quickly so they can feel the excitement of the WIN!
4. Relevant: Help your child choose an item that they will enjoy for more than a moment. Maybe a ticket to something neat that will provide a lifelong memory? A toy that will have sentimental value? Only the two of you can make this choice together.
5. Timeline: Set a date to hit the goal that is reasonable yet close enough to generate some excitement and a desire to work hard to get there!

Once you’ve worked with your child to create a feasible goal, it’s time to work on perhaps the most important lesson you can pass down to your kids when it comes to finances.

Budgeting for Kids

It’s never too early to start teaching your kids about budgeting. As discussed earlier, the first step is  open communication. Start using the word budget around your kiddos at an early age and verbally describing some of your healthy financial habits. Did you tell yourself “No” when considering that unnecessary purchase at Target this week with your kid in tow? Use the experience as a teaching moment⁵ to explain that even though you’d really love to buy another pair of cozy sweats, you don’t have room in the budget and will have to wait until next week. You can also provide a budget for kids prior to entering a store for a small purchase to help them practice.

On a more long-term basis, working on budgeting as a family can become a habit that your kids will take with them into adulthood and into their adult relationships. My husband and I work together on our monthly budget plan and have weekly check ins to see how we’re doing. Let me be honest for a moment- we’re not perfect at this. We skip weeks and then get back on track. We mess up goals and get back on track. It’s important that kids understand that flexibility and growth are part of the process. We strive to do better each month, and we have some non-negotiable goals.

As your kids grow, budgeting will become more formal. Once your kids start earning money, help them create a system that works for your family to record income and track spending. The key to creating habits that will be passed down to your kids that they will maintain for years to come is to allow them the ability to be in the driver's seat. Allow your kids to make choices surrounding budgeting⁴ and spending while providing a great basis of knowledge prior to starting and a few helpful nudges along the way. If your child wants to budget the bulk of their money on activities with friends, that’s just fine (if the activities are approved of course). Help them stay on course by ensuring funds are also tucked away for necessities and a rainy day, but the other items can be flexible. As your kids grow, the parameters for budgeting may shift to more closely mirror the choices they will face in adulthood but start slow and small.

Still feeling a little stuck? Here’s a sample budget that would work well for a kid who is new to money management:

1. Savings: Always pay yourself first and prioritize your future as well as emergencies.
2. Necessities: You may pay for all the items needed but choose one item at a time to introduce them to this idea. Perhaps the pizza party coming up at school that requires extra cash for games afterwards would be a fun, easy place to start.
3. Free Spending: This will be your kids’ favorite part, but the importance of thoughtful free spending is a great lesson to be learned.

Once you’ve set a budget, it’s time to start saving!

Savings Accounts for Kids

Many parents start savings accounts for their children when the kids are very young or sometimes even before they are born. Helping your kids understand the importance of saving for the future and for emergencies is one of the best gifts you can give a child. The stress people feel regarding finances (and lack of finances) is very serious and can even lead to stress-related health issues. Savings lessons can be as simple as my piggy bank was as a kid or as advanced as a formal savings account that pays interest. The avenue that is best for your child is ultimately up to you of course, but my suggestion is to start slowly and work your way into more advanced ways to save. By the time your child reaches adulthood, the habit will be part of their life and they will continue to save regularly even if it’s just a few dollars at a time.

There are many choices when it comes to savings accounts for kids,³ but the best advice I can give is to assess your child’s ability to handle money, their comfort level with money, and do your best to work at their pace. When money becomes overwhelming, it’s easy to throw your hands in the air and fly by the seat of your pants. Establishing healthy money habits does not come naturally to everyone, so exercise patience and work with them to grow into the type of savings account that is right for them to manage. That doesn’t mean you shouldn’t start an account on their behalf and save for future events like education but work a little at a time to teach your child to handle the account on their own. Your child will be grateful in the future that you taught them the invaluable lesson of saving regularly.

Habits are Learned

You will pass down habits to your children whether you’re aware of them or not. Your actions are being watched, and your kids will learn how to handle money from you even if you never sit them down for a money talk or show them a balance sheet. Taking control of the conversation means assisting in the financial well-being of your children, which is a mighty undertaking and worth the discomfort it may cause in the beginning. Money is becoming less taboo (thank goodness) so take advantage of the endless resources available as you begin your journey with your kids. One step at a time is all it takes to create money habits that will shape your child’s future in a very positive way.

SMART Goals, budgeting, and choosing a great savings account to help you on your financial journey are all important for adults, of course, as well. Perhaps this year you have your own financial goals and you’ve created a plan. As you continue your financial journey, Speedy Cash is always here to help if needed. In addition to loan options, we offer great resources on our blog that cover various topics. Check back each month for more great tips that will help you live your best financial life!