We can think of many lessons learned throughout our lives that should be passed on to our kids. The current crop of millennials, as well as younger generations, have grown up under the shadow of a recession in 2008 and further financial crises in recent times. For these demographics, learning how to be frugal was a discipline born of necessity.
We hope for our children to have a better future. But teaching them to live within their means is a timeless lesson, one that will help them secure financial independence, land the right mortgage, and settle down into a comfortable retirement. Here’s how you can go about passing on this knowledge:
Lead by example
Children will always learn by imitating those around them. You might know that leading by example is the most effective way to teach kids how to behave in any situation. This principle extends to money matters. Think about the ways you demonstrate frugality. Do you mindfully turn off the lights and power down appliances when not in use? Are you keeping track of your household budget with an app so that you can always pay your bills on time?
Model the way, and let them see what you do. Your child will be naturally inclined to follow, laying the foundation for sound financial habits.
Explain your thought process
When it comes to living within your means, what you don’t do might be as important as your actions. A lot of decision points are about turning down the urge to spend more, and this thought process is invisible to your kids. Bring them in the loop as you make decisions.
When you go shopping, explain why you don’t buy certain things, especially the ones that grab their attention. As you open your browser or e-mail, you probably ignore a lot of ads without even thinking. This can be an opportunity to teach them why that behavior helps you save money.
Don’t hide the numbers
Talking about one’s salary or expenses might not be encouraged among friends, but being open about the numbers with your kids will help to remove any aura of mystery surrounding financial management. Simply telling them to spend less than they earn might not be a lesson that sticks. Be specific, but keep it concise.
For instance, the 50/30/20 rule for budgeting divides expenses into three simple categories: wants, needs, and expenses. It doesn’t require a lot of complicated math to demonstrate.
Make room for mistakes
Adults need to periodically aim for specific financial goals: setting aside a certain amount of money for retirement, buying a house, or getting married. Encouraging kids to do the same will teach them how to practice financial discipline. At the same time, you might want to refrain from telling them how to spend their money.
Failure is a valuable teacher. If you let your child make mistakes on a small scale, they can learn to avoid them when the stakes are high. If they want to spend their savings on a toy that you know they will outgrow soon, don’t intervene. It’s an opportunity for them to truly grasp the value of money and make discerning purchases as they grow older.
All kids learn to crawl before they walk, swim, or run. Living within your means can be a complex discipline, so give them the time they need to learn by teaching these things from an early age.