Last week we talked about helping kids develop a financial mindset, one of the 3 building blocks of financial capability. This week we’re covering the 2nd block; habits.
Good financial habits are important because so much of what we do, financially and otherwise, happens on auto-pilot. Think about your spending over the last month – how much of that did you sit down and plan out and how much of it is pretty much how you spend your money every month? Helping kids build healthy financial habits means taking the ideas from the financial mindset we talked about last week and turning those into actions. The key components are:
1) The ability to view planning, living within your means, and saving in a positive light. If you treat saving money and budgeting as chores, your kids will too.
2) Decision making that reflects their own values and goals – not everyone else’s. Spending on things just because everyone else does is a dangerous habit and can leave you without enough money to accomplish the things you truly care about.
3) Establishing healthy routines for money management. Routine matters – it’s what your kids will fall back on when their lives get busy and more complicated. Setting aside money for savings before spending, staying aware of how much and where they’re spending, and having a plan for their money should be second nature, not something they think of as what they’ll do “someday.”
4) Self-confidence in their ability to handle age appropriate money tasks. Your 10 year old doesn’t need to be able to choose stocks for your retirement portfolio. But if they get some money as a gift for a birthday or other holiday they should feel like they know what to do next, whether it’s put it in a savings account or spend it on a goal they’ve had for a while.
As with mindset, one of the best ways to help your kids learn these habits is to model them yourself. Talk with them as you practice these yourself, let them be involved as you make small scale decisions. Many parents keep everything money-related hidden from their kids; they don’t want them to worry about how things will be paid for. While well-intentioned it can leave your kids without any positive habits in place, leaving room for plenty of bad habits to take root.
Want to learn more about the importance of good financial habits? You can read the full article here.