Your kids will follow your example in many things that they do so it is important that you practice what you preach. How to demonstrate smart financial habits to your kids starts with this important understanding. Use the trust that is instinctively there between you and your kids and teach them the right way.
Kids need to learn that money doesn't just fall from a tree, it is hard-earned and must be used wisely. Start by giving them an allowance based on their age and understanding. Make it a regular ritual and request for books to be read in exchange. Note the point I wrote about reading books and not chores.
Chores are a part of life and NOT a paid task. If you pay your kids for chores, you are teaching your kids to be employees where they exchange time for money. If you pay your kids to read books, you enable them to expand their thinking and create an Entrepreneur mindset.
When it comes to payment for reading books, choose a day each fortnight or each month and hand over their 'pay packet' pocket money in an envelope addressed with your child's name. Show respect for the money. Ask them how their last allowance was spent so that you can get a handle on their spending habits. Get them to keep a little notebook as their 'spending account ledger'.
Congratulate them if they are saving their money. Encourage this habit and you might even reward their habit of saving by giving them a small bonus to add to their account. Ask if they are saving for something special. If they are close to their goal and it is near a birthday you could make up the difference as part of their birthday gift. You'll know it's something special to them so it will be appreciated.
If your child does want something extra special expect, given them a book of your choice which will help them grow, a jigsaw puzzle, quiz. Let them learn that money must be an exchange for an education and is not just available for any desire. They will learn to appreciate the things that they buy with their own money.
Don't pamper to every whim of your child. Limit the gifts you give them and let them enjoy the gift given before allowing them to begin playing with another. Having too many at once will make them jump from one thing to another. Explain why they are not getting everything that they ask for. If they really want something that you have said no to explain why and that they must save for it themselves.
The key here is to limit the amount your child has to spend on Consumerism. Look at not only putting the money into a savings account but also teach them how to invest their savings in Index funds and stocks. I bought shares in Disney and presented this as a share certificate in a frame with their favorite character so they know they are a part owner of The Disney company as opposed to a toy they do not need.
It may not always seem like it but kids will listen to their parents so don't give in to their demands to keep up with their peers. Be firm...kids appreciate and respond to positive parenting. They need to know their boundaries. Explain why you do things but don't spoil everything by demonstrating the opposite to your kids. Instill smart financial habits in your kids and demonstrate smart habits yourself...don't blow it!
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