A bigger kid in the house means your conversations will no doubt become weightier. His wants are greater (think: devices, and a little cash to hang out with friends). And let’s face it, unless you have a huge portfolio, you may have only a limited amount of money to spread around.
Giving your kid hands-on experience with cash—plus a bit of leeway to make a few age-appropriate decisions—will pay off down the road. You’ll be instilling the confidence he needs to navigate the terrain and raising a kid who knows the true value of a dollar.
Incorporate the ideas below into your daily talks with your child, whether you’re shopping for clothes, cashing a check at the bank, or comparing the costs of an after- school activity or two. Discuss how these concepts can impact his piggy bank and the lessons he’ll glean from each.
1. Comparison shopping. You do this on autopilot, checking the store circular and noting prices as you cruise the aisles. Let your kid in on the task by showing her how you critique brands and sizes to determine which items are good buys. Even better: Give her three products on your list and challenge her to find brands and products that come in under a set amount of money. She’ll have to carefully scan labels to find canned peas, a loaf of bread, and a box of rice to meet her goal.
Lesson learned: She’ll develop an eagle eye for a bargain and learn to compare costs every time she shops.
2. Opportunity cost. Learning when and where to spend the money you have can be difficult to master, even for adults. In this same vein is the idea of opportunity cost—the value of an item that must be traded for something else. To illustrate this concept, accompany your child to a store—for sporting goods, for example, and let him pick out practice soccer shorts and a shirt. Once he makes his selection, tell him there’s only $10.50 allotted for one purchase—which will he select?
Lesson learned: Beyond simple budgeting, this lesson forces kids to consider an item’s real value and what it means to them personally. In this case, is the shirt more important so he’ll always have a clean one? Or are the shorts more important because they match the team’s?
3. Allow for allowance. Coins in a piggy bank are fine, but nothing says “big kid” like dollar bills in a wallet. Decide how much you’re willing to hand over, based on your child’s age and sense of responsibility. Experts usually recommend a dollar for every year, so an 8-year-old might “earn” $8 a week. It’s up to you whether to assign household chores in exchange for allowance, but either way, you’ll be giving your kid a chance to spend and save her own money.
Lesson learned: Eight bucks doesn’t go very far, so if she wants a new backpack, she may have to save for a couple of months. Learning how to watch for sales and clip coupons plays a role here as well.
4. The concept of credit. “I’ll gladly pay you Tuesday for a hamburger today” or so the saying goes. Show your kid the rainbow of plastic that lives in your wallet; talk about which purchases you make on credit and which ones you try to pay for in cash—and explain why. “Paying later” often comes with strings attached, so you also might want to discuss what credit limits and interest rates are.
Lesson learned: Buying too much on credit can backfire. He can buy what he wants to buy, but then he will have to come up with the dough to pay the bills, just the way you do.
5. Watching funds grow. Now that your child is getting a regular allowance, it’s time to start socking some of it away. Help her open a savings account and discuss interest (banks reward people for storing funds with them by paying back a tiny percentage). Check whether your local institution offers accounts for young people with low or no fees.
Lesson learned: She’ll understand the value of shopping around for the best interest rate (and will see how quickly her money grows) when cash is not burning a hole in her pocket. Money in the bank really is peace of mind.
6. Making investments. He’s not ready to play the stock market yet, but you can talk about Wall Street and the various companies that are traded on each index. Explain to him that when you invest in a business, you might earn a small dividend based on the amount you put in and how well the company performs. This money can be spent—or reinvested, which is called a compound return.
Lesson learned: It takes years to become stock savvy, but the stock market is worth an introduction in grade school. At the very least, your child might take an interest in a company and read up on the strategic moves it makes.