How to Make Smart Money Decisions as a Kid: Tips for Spending and Saving Wisely

Little kids are like sponges; they soak up everything you teach them. This also means you can teach them to spend and save wisely right from when they are little. You can also teach them the value of money and hard work by building their financial awareness through intentional tasks you set for them throughout their childhood.  

So how exactly can you teach your kids about money? This article explores the many ways you can start.

Understanding the Value of Money: Building Financial Awareness

Teaching your kids about financial literacy can be a fun process for your kids. There are many practical ways you can do this. For example, you can teach your kids the value of money and hard work by setting them house chores and paying them pocket money to complete the tasks.


Differentiating Between Needs and Wants: Making Thoughtful Spending Choices

Have your kids ever wanted something they thought they couldn't live without? It could have been a game, a toy or even the latest sneakers. When something like this happens, it's the perfect opportunity you have as a parent to teach your child the difference between their needs and wants.  

Below are some practical ways you can teach your kids about the differences between wants and needs:

        When your kids want to buy something new, ask them to identify whether it is a want or a need. Then, they can allocate their pocket money towards purchasing it if they get it right.

        When you take your kids grocery shopping, ensure they only pick things on the shopping list. If they pick up things that aren't on the shopping list, you can explain why they don't need them at that time.

        Treat your child to what they want, and tell them why you are treating them. This will help them understand that treats are allowed at the right time and when they have earned it. 


Creating a Budget: Allocating and Tracking Income and Expenses

Do you have a household budget? You can get your kids to create their budget sheet if you do.

However, if you think they are too young to grasp the concept of the household budget, you can do it on a smaller scale, for example:

        Help them earn money by giving them money for completing the house chores.

        Then, with your child, you can set a budget sheet for everything your kids use – e.g. books, toys, new sneakers.

        When they need something new, let them add it to the budget and review whether they have enough money to purchase it.


Saving Strategies for Kids: Setting Goals and Developing Saving Habits

Does your child have a bank account? Now is the perfect time to do this – you don't have to wait until they become teenagers. Take them with you to set up the account in their name. For example, when they get birthday money from friends and family, you can encourage them to save the money in their bank account. 

Furthermore, aside from their savings account, they can have a piggy bank to save towards toys, games and new items.

In addition, you can set up child investment accounts for your kids and intentionally save for their future. For this sort of account, your child will know that it is for the future, and they will keep it up for life.


Making Informed Purchases: Researching, Comparing, and Prioritizing

You can teach your kids how to make informed decisions about money in many ways. You can teach your kids how to make informed decisions about money in many ways. For example, you can take them with you as you do your weekly grocery shopping and take note of the prices of the products you buy. Then, you can show them the difference between store brands and name-brand products and compare the prices.

In addition, if you are on a tight budget, you might compare the prices of products between different shops and ensure you know the cheapest place to buy each product. Putting this into practice will ensure they are ready to manage their finances when they become adults and teach them how to live on a fixed income. 


Delaying Gratification: Learning Patience and Avoiding Impulse Buying

Setting up a savings account in your child's name should be aimed towards future use. For example, when your child understands that their savings account is for a long-term need, e.g., buying a home, it will teach them patience. Patience is an important skill to master, and when your kids learn this from a young age, it helps them get into a good habit of saving for the future.

So, what practical ways can you teach your kids to avoid impulse buying? Here are some examples:

        Have a budget and stick to it – ensure your kids have full access to this budget and know how much is allocated to what they need to buy.

        Establish the difference between wants and needs – your kids should know that they need to earn the money to pay for their wants with pocket money.

        When your kids start working (e.g., weekend or part-time jobs), allow them to implement the things you have taught them about money by themselves – if they make mistakes and impulse buy, they will learn from those mistakes and make better decisions next time. 


Seeking Guidance: Communicating with Parents or Guardians for Financial Advice

When you have created a safe space for your kids to talk to you about money, you will see the benefits of doing so right from when they are young. As parents, your kids will ask you for guidance about money and how to spend it wisely – and you should do your best to answer them as honestly as possible.

You can teach your kids about the value of money in many ways. Using practical, real-life examples through grocery shopping, house chores and budgeting, you can help your kids to develop a good relationship with money. Teaching your kids about money management will ensure they become responsible adults less likely to get into debt.

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