Like you sharpen your professional skills over time, your children will sharpen their money management skills over time. First, they practice with their allowance. Then as teens, they manage job earnings.
It’s your privilege as a parent to guide your children’s money management training, which includes setting and keeping spending limits. Three tips help you teach your children how to successfully balance their budget, maintain spending limits and avoid debt.
1. Set Dollar Amounts to Spending Limits
When it comes to household rules or screen time, you give your children specific boundaries. The same principle applies to spending limits.
Whether you give your child cash or a pre-paid or regular credit card, assign an actual dollar amount they can spend. This monetary limit can total the amount of money they can spend in a day, week or month.
To ensure your children stick with their assigned spending limits, schedule regular check-ins. Ask your children to provide receipts for cash purchases or review credit card statements together. Then, discuss the ways your children spent wisely and ways they could improve. You can also model and discuss ways you maintain spending limits on household expenses, everyday purchases and holiday gifts.
2. Explain the Consequences of Overspending
Your children are more likely to follow rules if they know what to expect if or when they break a rule. It makes sense for you to set and explain the consequences of overspending, too.
The results of your children’s overspending could include losing their credit card privileges or repaying what they overspent. You choose the consequences or ask your children for their input.
To reinforce the consequences, give your children real-life examples of what could happen if they fail to keep their budget in the future. For example, they may have to postpone their first car purchase, choose a more affordable college, fall into student loan debt, or rent instead of buy a house. These scenarios can motivate your children to follow spending limits and establish good habits now.
3. Discuss Long-Term Habits
Rather than set rules and expect your children to follow them blindly, you probably explain your reasoning behind the rules. Likewise, you’ll want to explain to your children how spending under, near or above their limits now could play out in the long run.
Spending under the limit increases your children’s financial worth. They will have leftover money for spending, savings (like college savings) and/or investing. They also gain freedom and empowerment as they spend less than they earn.
Spending near the limit ensures all the bills are paid but doesn’t leave much for extras. Your children may need to forgo luxury items and postpone non-essential purchases. They may also struggle to save for the future, which can affect their ability to buy a house, retire early or achieve other financial goals.
Spending above the limit creates a cycle of debt that can last for decades. As your children struggle to cover their living expenses and debts, they’ll feel stressed and frustrated instead of free and empowered.
Spending limits are important money management skills. Use these three tips to train your children to spend within their means now and prepare for a bright financial future.
About the Author: Jennifer Turner writes web content for a variety of clients. As a gig worker, she understands the benefits and challenges of the industry, which is why she prioritizes daily self-care. Find her at WriterAccess.