10 Ways to Build a Healthy Relationship with Money at An Early Age
This post is sponsored by BECU. All opinions are my own.
Talking With Your Children: The Importance of Educating Your Children About Money Management
I’m partnering with BECU this year to focus on financial health and wellness, as well as giving you insight into my life and how I manage my finances and relationships. BECU is a member-owned credit union focused on helping increase the financial health of its members.
For the month of March, I’m going to share with you some easy money management activities parents can put into practice to educate their young children and help prepare them for the future. Also, I’ll share some BECU tips and tools to help you have that all-important conversation about money with your teenagers.
Before we go through the list of valuable money management ideas for your kids, I want to give you background on how I grew up and managed money. Wind the clock back to 1985, and I was born in sunny Southern California where my mom and dad were running their own embroidery business. They would work long hours and saved every penny. My parents were old school - we didn’t have bank accounts or trusts or anything fancy like that, but rather containers filled with coins, dollar bills and international coins from traveling.
Fast forward to today. I’m now a father of a 19-month-old and have realized more than ever the importance of understanding how money works, and managing it.
Here are 10 money management ideas to get your preschool/grade school kids off on the right foot.
Piggy Bank: Have a piggy bank and have them insert any loose change into it. This will build a positive habit of saving through physical engagement. Seeing the savings physically grow in the container will give them a visual cue. Growing up, I used to have a giant bear shaped cookie jar where I’d put my leftover lunch money. That’s probably how I first developed the habit of saving since preschool. BECU’s modern take on this childhood classic is the Early Saver account—offering 6.17% annual percentage yield (APY) on the first $500, and 0.10% APY on $500.01+.
Play Imaginary Shop: A great way to learn about money and the tangible costs of items is by having an imaginary shop in your living room and pretending you’re buying things with fake money like fruits, plastic toys, etc. IKEA sells some affordable children -sized cash registers if you’re looking to make this one happen. Also, KidsQuest Children’s Museum in Bellevue, Wash. has a pretty large shop where kids can play in a faux marketplace with plastic fruits, fish, meat, canned goods and more. Note: Toddlers may try to swallow coins, so always provide close supervision.
Needs vs. Wants: An essential lessoi n learning about money management is understanding needs vs.wants and avoiding impulse buys to make your children happy. And no matter the age, delayed gratification and reducing emotion driven purchases can help manage your spending.
Have your Children Pay: Whenever you pay for something at the store, explain to your kids what you’re doing. You can even have your kids pay so they can experience what it’s like to pay for things and the exchange of goods.
Teach your Kids About Giving: Earning money is one thing but it’s also important to teach your kids about giving - whether that be at church, for charity or a non-profit. Instilling habits of making a positive change in their early years will make giving much easier in their later years. One of the practices we do is by giving our daughter dollar bills and having her put it in the offering bucket at church.
Opportunity Costs: A good practice to teach your kids is the power of choice and making decisions. Children want everything and, as a parent, it’s our job to teach our children about making decisions and putting value on things they really care about.
Give Commissions, Not Allowances: I grew up doing a ton of chores like taking out the trash, cleaning the house and making sure our dog and cats were fed. The key difference between your children earning money based on a commission vs. receiving an allowance is that, with a commission, you’ll teach your children early on about work ethic and ownership, both valuable characteristics to have as they get older.
Go to your Local Financial Institution: Take your children to a financial institution to open up their own savings account and teach them the power of saving and investing. Keeping your children accountable for their money will allow growth and better management when they get older.
Play Board Games like Monopoly: I don’t know about you guys, but I absolutely love board games. One of my favorites growing up was Monopoly, a real estate game that requires understanding money and the exchange of goods, and of course some friendly competition. Board games are a fun way to learn about money management, while sneaking in some family time.
Borrow Responsibly: Teaching your children the ins and outs of borrowing money and how to do it responsibly will serve them well into their future. A great way to implement this is by having them save up for part of the purchase, say 50%, and you can loan them the other 50% to be paid back in a certain amount of time.
How to talk to teenagers about money for their financial well-being.
Now that your child is growing older, you’ll start experiencing higher spending habits and increased wants. As parents, talking with teens about money can be a difficult task, whichis why BECU has developed aresource called The Next Big Talk: The Money Talk guide (available to download in English and Spanish), which aims to help parents and their teens get familiar with finances and jump into adulthood with a sense of financial independence.
Here are the Four Areas of Financial Health to help get the conversation started.
1. SPEND: Managing cash flow and spending less than your income to save for future expenses can help you deal with unexpected events. One of the key financial practices we like to use at our home is only spend money you have. If you don’t have the funds, then don’t spend it. Proper budgeting and being intentional with your spending can lead to positive benefits for your future.
Here are some tips and tricks I use when it comes to managing my spending:
Use cash or a debit card to better manage your financial health.
Use online coupons when making online purchases. I use Honey and eBates to save big on every online purchase. These sites look up the best coupons on the internet and automatically apply it to your purchases. If you are going to spend, spend wisely.
Buy used items instead of new. I like to use Offerup to buy second hand items which will save you on average 50% or more. I’ve bought so many items on Offerup from household items to tech products.
Borrow books from your local library vs. buying new books all the time. My daughter and I like to visit the local library and check out books after church. This is a great way for us to bond while also saving money.
Leave your credit cards at home. If you don’t have a way to purchase, you won’t make the purchase. There are times where I’ll just leave everything but my phone and ID at home so I can focus on spending time outside rather than thinking about what I’m going to buy next.
Pro Tip: Give yourself 24 hours to think about a purchase that you want vs. need. There’s a good chance you will reconsider once time has passed. If you start building positive habits into your buying decisions, you’ll see a dramatic effect on purchase frequency.
2. SAVE: It’s important to buildup sufficient savings to cope with the unexpected, like a car repair or a sudden drop in income. According to CNN Money, 40% of Americans can't cover a $400 emergency expense.
Here are some tactical ways you can use when it comes to savings:
Open up a Savings Account. BECU offers an Early Saver account for your kids to get started early. I recently opened up an account for Mackenzie which has been a great way to put her birthday money and any special earnings to her name.
Setup monthly automatic transfers from Checking to Savings. I’ve used this strategy for about 10 years now and it works great. This allows me to save without even trying and most importantly, forgetting. I use this same methodology for taxes as well. I’ll automatically transfer out 30% of every paycheck into a tax account to ensure I have enough at the end of each tax calendar.
Automatically transfer 10% of your paycheck into a retirement fund. We put $200/month away for Mackenzie’s (my daughter) 529 plan — a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
Open up a CD (Certificate of Deposit). CD's are a great long-term investment that range from 3 months to 60 months where you can earn interest on your money. I actually opened up my first CD account when I was in high school! If I remember, the interest rate at the time was 6% per year.
Create separate accounts for Travel, Big Purchases, and another for Birthdays/Holidays. This will ensure you have enough saved up to make those purchases instead of racking up more credit card bills.
Setting financial goals as a family for a big purchase or a vacation can be a great motivator for your kids and for parents. With everything going on, our top three priorities are retirement, kids education, and vacation!
Pro tip: Save at least 10 percent of your paycheck or allowance - and more is even better! Setting up automatic transfers to your savings account can help you stay on track.
3. BORROW: Managing your debt responsibly is vital to avoid getting overwhelmed by late fees or payments, which impact your credit score. A best practice you can follow when managing your debt is by first avoiding acquiring it when possible. Always remember to pay off the statement balance each month at the minimum.
Here are some tactics I use to build a strong credit history:
Pay off one bill a month with a credit card and pay it off each month. There’s a sense of satisfaction and achievement when you pay off a bill in full.
View your credit report yearly and look for any inaccuracies. You can learn more about your FICO Score under BECU articles.
You can use the free BECU App (iOS / Android) to look at your credit score at a glance. It’s been a great tool to check the status and health of your credit; however, I do recommend getting a full report done from one of the three big Credit Bureaus Equifax, Experian, TransUnion.
Review the interest rates when signing up for store-brand cards, they are often way higher than traditional credit cards. If you do sign up for one, a pro tip I’ve used before is use the store - brand card, then you can pay it off right away with another Debit Card.
Create a monthly bill payment calendar. By creating more visibility of when bills are due, you’ll be better able to manage your payment cycles. I have all the big bills mapped out on my Google Calendar with alerts setup to ensure no payments are missed.
Pay off collections and charge-offs. Several years ago, I accidentally missed a Macy’s bill for $30 which caused the bill to go into collections without me knowing. My credit score dropped by nearly 200 points and it took over 7 years to recover. A great way to ensure you don’t fall into this trap is by checking your credit score from time to time.
One of the biggest lessons I learned over the last decade is understanding how debt works. Back in 2013, I was looking to purchase my first home, and got first-hand experience on understanding what all goes into getting a loan — income, credit history, number of credit cards opened and closed, credit score, and your debt to income ratio.
Because buying a home is on top of everyone’s dream list, it’s important to understand how to best manage debt and maintain a healthy credit score. You can read more on the BECU blog on the things that impact your credit score, here.
Pro tip: Making loan payments on time is one of the most important things you can do to keep you credit rating high. Setting up automatic payments can help you set yourself up for credit success.
4. PLAN: Planning ahead by setting goals, preparing for expenses and obtaining insurance are important fundamentals of positive financial health, now and for the future. BECU provides many resources to help you manage your budget more effectively and plan ahead for larger purchases. Two great resources include this “Setting Up a Budget” interactive tool and BECU’s Money Manager. Every high school student wants a car, but do they have the money to buy it? Budgeting and setting goals at an early age will help them reach these major milestones as they get older.
Here are some tactics I use when managing my money:
Check your budget before buying something. Going back to my point about buying only with the money you have, if you haven’t budgeted this into your monthly account, then you shouldn’t buy it. It’s all about discipline.
Seek better alternatives. When you’re planning for that next purchase, ask yourself “Is it really worth it?” and research other alternatives before buying that name brand which might cost a premium.
Set spending goals for the next few years. Several times a year, I like to sit-down with my wife and go through our BIG spending goals. This helps us get aligned on saving and it also helps us to look forward to new adventures together. Our spending goals looked something like this for us:
Buy a House
Buy a New Car
Buy a New Couch
Pay off Couch
Funds for Second Child
Pay off CarRemodel Backyard
Pay off House
Buy Investment Property
Have a plan for unexpected expenses. This is a big one and something we need to do better. Although, we do have a savings account, we don’t necessarily have one for unexpected expenses, it’s all wrapped into one account. An incident that happened 3 years ago:my step father passed away unexpectedly which caused the family to assist in funeral costs. Preparation is always a good thing.
Pro tip: Set goals for yourself and the family to better make those important purchases. You can read about setting yourself for financial success here. BECU’s Money Manager tool is a great way to visually see where you’re spending money and identify where you may want to cut back.
If you haven’t yet, check out BECU’s The Next Big Talk: The Money Talk guide, using real-life examples to make it easier for parents to help their teens get familiar with finances and jump into adulthood with a sense of financial independence.
BECU is inspired by the belief that teaching healthy financial habits early helps teens make more educated saving and spending decisions. Once a year, they host its Annual Day of Service, a one day event where BECU employees bring financial education into communities by working with high schools in our local communities.