Teaching kids about saving money and budgeting

Story originally posted on Chatelaine.

In her book, The Battle Hymn of the Tiger Mother, author Amy Chua chronicles her struggle to be the ultimate “Tiger Mom”, pushing her daughters for As in school, banning TV and video games, and making sure they grew up practicing the violin for hours every day. Her reasoning: nothing in life is fun until you’re good at it. And getting good at it means hard work and discipline.

Although Chua’s book has generated boatloads of controversy, I think there’s a big lesson parents can take away from it when it comes to teaching our children about money. In a society where kids now want (and expect) to have everything adults have — including laptops, cell phones and cars — it’s up to parents to teach them that nothing in life is free and that, with discipline, they can be capable of making good financial decisions.

Without that discipline — to pick up on Chua’s theme — kids are going to have a really hard time enjoying their money later in life, when they’re shackled by debt or trapped in high-paying jobs they hate. I think it’s time for us all to sing the battle hymn of the financial tiger mom and start teaching our kids some money smarts and discipline.

Here are a few tips to start with (and please feel free to add your own below):

Don’t just give it to them: Your kids are going to bug you relentlessly for expensive stuff like Wiis and iPads. Saying no is tough — but it’s the first step in teaching them they can’t have anything they want.

Set a family budget with them: Teach them that your family has spending limits and show them what they are. So if they want to have that Wii, they’ll have to pick something else to knock out of the budget.

Get them a savings account: Financial products are part of life. Used well, they can be great tools for building wealth. But they can also be a money trap if you don’t understand how they work. A basic bank account teaches kids about interest — and bank fees. It’s a good starting point.

Help them find ways to earn extra money: Your kids should have a chance to earn their own money and save for the things they want to buy. Help them come up with ideas like shoveling neighbours’ snow or doing extra tasks at home. But don’t confuse this with their basic chores — kids also need to understand you don’t get paid for duties that are part of being in a family.

Model good behaviour: If you eat out all the time or spend your weekends at the mall shopping, your kids are going to do the same. The best way to teach your kids discipline around finances is to lead by example. Teach them how to cook and bake, and make meal preparation a family activity. Kids who love cooking are less likely to spend all their money on takeout when they grow up. And avoid using shopping as family entertainment — there are tons of free things you can do instead that will bring you closer together as a family.