With Money Comes Great Responsibility

From an early age, we become interested in money, both in receiving it and spending it. As children, we received money from the tooth fairy, for completing household chores, as a gift on special occasions, for getting good grades on our report card, etc. Money gave us a sense of freedom and independence and because we had no financial obligations, we could spend it on the things that we really wanted. As a child, I was never really encouraged to save, and whenever I received cash, it was referred to as "a little spending money". As a parent, I wanted to take a different approach with my son. I wanted him to learn from a young age the value of money, how to save, how to budget, how to plan, how to invest, and how to prioritize his spending. Here are some tips to help your child start saving and spending responsibly.

Keeping Track:

Kids keep their money in a piggy bank, wallet, or purse and this gives them full access to their funds whenever they wish to spend it. There is no formal process to help them monitor how much money they have coming in and how much they have going out.

I had a supply of old checkbook transaction registers so I started with my son using those to track his cash flow. If you don't have any, you can find several money log books for both kids and teens available for purchase online. Get them in the habit of recording their "deposits and withdrawals" and updating their balance. This simple step of consistently tracking their cash flow will increase their awareness and ownership of their spending.

Kid-Friendly Expenses, Accountability, and Responsibility:

We often pick up the tab for items that our kids need and want, but providing them with their own list of expenses can encourage financial accountability, responsibility, and ownership. Here are a few suggestions for kid-friendly expenses:

• Membership fees to clubs and organizations.

• Activity fees (school field trips, social outings, etc.).

• Replacement for lost items (ex. articles of clothing, school ID, public library book, sports or personal equipment).

• Personal hygiene supplies (toiletries).

• School supplies.

• Lunch money.

• Gifts for others (birthday gifts for friends and family members).

• Transportation (bus, subway, ride share).

• Subscription services (magazine, streaming, etc.).

• Cell phone bill . If they have a cell phone, why not have them contribute a set amount to the monthly bill?

• Gas money/electric car charge fee (for young drivers). Like with the cell phone bill, I would recommend they contribute a set amount at a set frequency. This will make it easy for them to plan and budget.

• Investment Contribution. Encourage them to contribute a portion of their funds each month to their savings or investment account.

• Special Event Planning (Prom, Graduation, etc). Perhaps they could contribute funds to purchase a dress, help cover their tux rental fee, or purchase their own cap and gown.

Creating Good Spending Habits :

Now that your child has a means to track their cash flow, it is time to teach them how to spend it responsibly. The key word here is balance. You want them to prioritize their needs and wants. Here are suggestions to help them evaluate what is most important and set limits on their spending:

• Create two lists: "Needs List" (personal supplies, school supplies, etc.) and "Wants List" (toys, movie tickets, cool clothing, video game currency). Next, they should identify the cost of all of the items on each list and prioritize those items in order of importance on their respective lists. As new needs and wants develop, your child should review, update, and re-prioritize their lists accordingly. The whole point is to have them conduct a need versus want analysis and manage how they use their money.

• Set a monthly spending limit for items on their "Wants List".

• Create an "end of the month balance goal". This is the amount of money they want to have left and carry over into the next month. For example they might want to have a $200 balance at the end of each month.

• Save and set aside funds for big ticket items.

• Create a contingency (rainy day) fund. Describe what this is and explain why maintaining a buffer is crucial should unexpected events (and costs) arise.

Incentives for Saving:

Positive behavior should be reinforced. Offer incentives for saving:

• Match your child's contribution to their savings or investment account.

• Give them a bonus every time they meet their "end of the month balance goal".

• Offer a bonus for meeting a saving milestone (ex. if they set a goal to save $300, give them bonus cash once they have reached it).

Use these tips to help your child start saving and spending responsibly.