How to Stop Overspending

Teaching children the value of a dollar is essential to their financial education. However, if you’re constantly overspending, passing on good money habits to your little ones can be difficult. If you’re an over-spender, check out these articles on managing your finances:

• Meeting Your Budgeting Goals by Managing the Unexpected
• How To Save More and Make Spending Painful
• Why Do We Turn a Blind Eye to Financial Matters?

As a parent, you play a crucial role in demystifying financial concepts for your children. Engaging them in conversations about money, such as budgeting and the cost of living, is an ideal way to do this. Supplement those talks with hands-on experience, and you’ll help your kids make smarter money decisions in the future. Here’s how to ensure your kids know the value of a dollar.

1. Introduce them to money concepts early

The best money lesson for kids is understanding the concept of currency and how transactions work. Most children will likely have already seen you pay for things with money, but they might not know how you earned money to begin with. Sure, they may know you have a job that pays you money, but there’s a good chance they still understand how that works.

Setting up an allowance system can be a practical learning tool. For example, you could give your kids a dollar for taking out the trash or two dollars when they clean their room. You want them to understand more complex tasks earn them more money.

2. Have them save and invest early

When you add up allowance, gifts, and birthday money, kids can quickly accumulate a lot of amount of money. Using a piggy bank is a good start, but eventually, you want to set your kids up with a bank account. Explain to them that if they avoid small instant purchases, they can save their money for something more meaningful, such as their post-secondary education. This is known as delayed gratification.

Additionally, you’ll want to share with them that many financial institutions will pay savers in the form of interest. The more money they save, the more interest they can earn. You can also go over how if they invest their money, they could potentially earn even more money.

3. Create a budget with them

All children should learn how to set up and stick to a budget, as it’s something they’ll be doing regularly throughout life. There’s no need to overcomplicate this lesson. If your kids are young, start with three categories: saving, spending, and sharing. If you have teenagers with monthly expenses and a part-time job, you can show them how to track their income and spending. You could also help them project their budget when they start college or university.

4. Set up your kids with smart shopping habits

When it comes to shopping, children should be shown how to differentiate between wants and needs and make purchases based on their budget. They can practice this by making small purchasing decisions, such as choosing an item that offers better value. As they get older, you can show them how to price compare and explain to them how something more expensive doesn’t automatically make it better. Conversely, you can also share how sometimes it makes sense to pay a bit more for something of better quality.

5. Encourage family talk about money

Regardless of how old your kids are, having regular money talks as a family so there’s an understanding of how the family finances are working. For example, if your child wants to play competitive sports but money is tight, simply tell them there isn’t enough money for those kinds of activities right now. Don’t automatically say yes and charge things to your credit cards, as you’ll incur interest charges that will cost you more in the long run. Even if you have the money available, it’s still worth talking about family expenses as there might be a better use of the money, such as a vacation.

6. Go over credit cards

When used responsibly, credit cards can be great to help manage your cash flow and build your credit score, but no user manual comes with them. Once your kids become teenagers, getting a credit card in their name may be a good idea so they can start managing things on their own. The key thing to explain is that credit cards are like a loan, and if you don’t pay back the full amount by the statement due date, they’ll incur interest charges. Be sure they understand how credit cards work and that their interest rates can easily be 20% to 24%, so that means for every $1,000 they borrow, they would owe an additional $200 – $240 if they don’t pay off the full balance.

Final thoughts

As long as you’re willing to educate your kids about money with practical examples, they’ll quickly understand the value of a dollar. The key thing is to lead by example and don’t be afraid to talk about the family finances regularly.