Having children gives you so many opportunities to teach them about money and finances. They are seeing you make decisions on items in your daily lives. It could be at the grocery store, mall, or even purchasing items online.
Sales and Coupons
From an early age, my children were aware of sale items because I was always open about talking to them about it. When they asked for something, I’d direct them to look to see if the item was on sale and when they said “no,” I said that we’d have to wait until it was on sale. This was planting the seeds of delayed gratification. We finally arrived to the point where they would know to wait until the items were on sale to even ask for it. On our personal grocery list, we have items that are to be purchased, but only when on sale. Planning ahead instead of waiting until you’re out of something helps with having to buy items that are not currently on sale.
They were also introduced to coupons very young because we routinely used them for restaurant trips, grocery store runs, and other events and activities. I believe this was a good lesson for them about saving money. One of the most difficult challenges in teaching children about money is to have them fully understand delayed gratification. Younger children typically only feel the immediacy of a want. It’s hard for them to understand that they can’t have something when they ask for it. To them it doesn’t really matter if it’s because you don’t have the money, it’s not on sale, or for whatever reason you may give that day. When they hear the word “no,” their knee-jerk reaction is to throw a fit because they don’t understand wants versus needs. They asked for something and you didn’t give it to them, that’s all that they see. As they mature, you can work on this and they will grow to understand.
It may seem obvious what wants and needs are, but it’s actually more complicated than that. We know that food is a need, but does that mean that everything at the grocery store is a need? You know the answer to that question.
Needs
The website www.opploans.com classifies needs, at the core, as things that we have in order to live a healthy and happy life. That seems pretty vague and easy to rationalize when you make purchases. There is an entire movement of people who embrace extreme frugality and keep their expenses to a bare minimum. They use the extra money earned to retire early. Now, doesn’t that sound amazing?
Let’s go back to high school psychology class to discuss Maslow’s Hierarch of Needs.
· Physiological Needs. These include air, food, water, shelter, clothing, warmth, and rest. This is considered one of the basic needs
· Safety Needs. Safety, personal security, employment, resources, health, and property make up this level and is also one of the basic needs
· Love and Belonging. In this level, you’ll find friendship, intimacy, family, and a sense of connection. These are considered psychological needs.
· Esteem. Respect, self-esteem, status, recognition, strength, and freedom fall under this category and is also part of your psychological needs.
· Self-Actualization. The highest on the hierarchy ladder and considered self-fulfillment needs. Self-actualization is to achieve one’s full potential and can include creative activities.
In looking at this list, true financial needs are those that fall into the basic category and cover the levels of physiological and safety needs.
Wants
Wants seem to be a lot simpler to figure out. Items such as designer clothes, sports cars, and upscale dining fall here. It’s clear to most people that these are wants and not needs. Now, let’s talk about many other purchases that could be masquerading as needs when they’re truly wants. Do you buy new clothing when your old clothes are still in good shape? Do you eat out when you have food at home? How about purchasing a book when you could borrow it from the library? You can easily see that you purchase many wants and justify them by calling them needs.
As long as you have a balanced budget, you may justify that it’s ok for these purchases and they are “worth the cost.” It may be ok if you’re not struggling financially. The problem occurs when these unnecessary expenses have you spending more than you can afford or even going into debt. If that is the case, it’s time to trim the fat and cut back to a leaner budget.
How Can You Tell the Difference?
Before you make a questionable purchase, ask yourself one important question. Do I really, truly, actually need this? Seems simple, but you have to answer HONESTLY. Most of the times you think you need something when you really don’t. Follow up the first question with two others:
What would happen if I didn’t buy this?
What would happen if I bought a cheaper version instead?
Needs are essentials. It might be surprising how many non-essentials could be cut from your budget. This may require a lifestyle change, but that may not be a bad thing. And, you never know, you might actually be surprised how little you miss those items that you thought you needed.
What changes could you make?
A phone may be a need in today’s world, but does it need to be the newest and fanciest iPhone? Is that a want or need? I would tell you that the latest and greatest is absolutely a want. I’ll give you a hint. The newest innovations would never be considered a need. The next questions should be…
· Does the purchase meet a basic need like food or safety?
· Will it be something you need in five years or could you invest that money or put it in savings?
· Does the item make you happy and continue to do so?
Shopping
Start teaching your children about money when you are shopping or paying bills. Have them look at prices and guess how much things cost. At the end of every Costco shopping adventure, I always ask my own children what they think the most expensive item was. **Hint, it’s usually the meat. I also tell them how long it would take to earn that money if they were to use their allowance to purchase it. This helps put it into personal perspective. For example, when my kids were younger, we discussed the breakfast sandwiches that they love that cost $9.89, I told my then 5-year-old that it would take her five months of her allowance to purchase those sandwiches. They may not fully understand this at first, but it is still sinking in.
Let Money Be an Open Conversation
Some people say that you shouldn’t talk money in front of your children, but I completely disagree. How can they understand about money if it’s taboo to talk about it? I think if you don’t talk about money, then your children will not be prepared for the real world and will have no understanding of how it all works. I know that as a parent, you want to do everything for them, but they will not know how to do it when they need to. When you tell them to turn off the lights, shut the back door, or close the refrigerator, make sure that they know that all of these things cost money and can come with a hefty price tag. Show them the utility bill when it comes in. Explain to them that leaving on lights when you’re not at home or leaving the door open with the air conditioning running is a bad habit to get into and can drain your finances.
I know that it’s always easier to spend other people’s money; however, you can still teach them that their decisions matter. This is concrete example that if they leave the light on, it will cost money when they see the electrical bill increase. When we leave the house and notice lights on, I comment on this and turn them off so they can be aware.
Repair Broken Items
Another way to teach your children the value of money (and items) is to repair broken items. Don’t send them the message that everything is disposable and you can always just get another one. If they break a toy, see if you can fix it. If it can’t be fixed, you should explain to them about the importance of taking care of their toys and belongings. The next step would be to start saving for another one out of their allowance. If they break their bicycle due to carelessness, let them understand the consequences of not having a bike for a while. This will create value of the item, instead of them thinking, it doesn’t matter if they don’t take care of something; they’ll just get another one. We are officially in a throw-away culture and I think that contributes to the lack of responsibility with things and finances..
Even when you have items in disrepair, let them know that perhaps someone else could fix it and use it. This is where I go back to posting items on freecycle to give to others who may be capable of fixing it. www.freecycle.org. This organization is designed to keep items out of landfills by reusing items. One person’s trash is another’s treasure. All items are given away for free. People post items that they are offering that range from clothing, bikes, washing machines, and televisions. Some are working perfectly fine and others aren’t. The only down side to participating in freecycle is that the items are not tax deductible. The way I look at it is that if I’m also receiving items from individuals, then it’s a wash.
Keep items for longer periods of time so you can relay to them the importance of taking care of your belongings. When clothing items no longer fit, don’t throw them away, try to sell them or give them to a charity for someone else to use. All of these are lessons that you want your child to have as an adult. Are you someone that has to have a car every two years? Think about the message that you are displaying to your children. When something gets slightly old, we replace it.
I’m not saying that you’re not allowed to have nice things. Everyone likes nice and new things. The difference is your perception of the item and how you care for it. When you rent a car or a room in a hotel, do you tend to treat it a little rougher than you would your own things? Or, do you say, it doesn’t matter, it’s not mine? No matter who’s it is or how old it is, you should teach your children to treat all things with respect. Not immediately replacing old or broken items will help them with this lesson. The underlying lesson here is that if you take care of your things and respect them, they will last you for many years.
Setting an example for your children is so important for their financial lessons. You leading by example is even more important than just your words. Be consistent with your behavior and your children will believe that it’s the way things are to be done. You are setting them up financially for the rest of their lives without giving them a single penny. More importantly, you are teaching them how to avoid debt. This is especially important being that according to www.debt.org, American household debt is reached $14.6 trillion in the spring of 2021.
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