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6 Smart Spending Habits to Pass Down to Your Children

by Caldwell Trust

teach children smart spending habitsTeaching children about how money is earned and the responsible way to manage it is important, but not often discussed. As soon as a child is old enough to understand the concept of money, it’s a good idea to introduce smart spending habits. It’s also important that you “practice what you preach” as children are often more likely to copy what you do rather than listen to what you say.

Here are 6 smart spending habits to pass down to your children:

Understand that Income is Earned

One of the most important lessons to teach a child about money is that it is earned. Unless you’re the heir to a great fortune, you’ll need a job if you want money to pay your bills and buy things you want. The easiest way to introduce this concept to a child is with an allowance. According to a national survey conducted by the American Institute of CPAs, 61% of parents pay their children allowance starting around the age of 8 with the average allowance being about $65 a month. Children earn this income by performing jobs around the house and receiving good grades. Once a child realizes money must be earned, they should also have a greater appreciation for the work their parents do to support the family.

Talk About What Things Cost

Most children don’t realize how expensive the food they eat, the toys they play with, and the activities they participate in can cost on a monthly basis. While some parents hide this information from their children as to not disturb the “carefree” nature of a childhood, you’re doing your child a favor in the long run by educating them on the subject. Share with them how much things cost - from the food they eat to the shoes on their feet. Most children are surprised by how expensive these items are. Once they understand what things cost they can start to understand the concept of a budget.

Price Shop/Compare Prices

Learning how to find the best deal is a very practical skill. By teaching your children that most items have a different price depending on where you buy them, they can understand how to better save their money. Here are some ways you can involve your child in price comparison:

  • Next time you book a flight share with your child the price of the tickets for each airline
  • When you pay for car or home insurance show them the different prices by carrier
  • If you’re shopping for a birthday present online bring up the price of the gift on two different retail sites
  • When you go grocery shopping let your child help in comparing prices for similar items

It’s important to also explain to your child that price alone is not the only factor to consider, but also quality and overall value. Sometimes we are willing to pay a higher price if we feel it is a better deal overall. For example, paying a higher price for an airline ticket because the airline is safer or paying more for insurance because the carrier has a better reputation.

Distinguish Wants from Needs

Distinguishing wants from needs can be a particularly difficult concept for children to understand. It can be helpful to make a list with your child of what the family needs to survive (food, water, clothing, electricity, shelter, etc.) vs. wants (vacations, electronics, toys, etc.). Explain to your child that the money you earn must first be used to pay for the things you need before buying things you want.


According to a study conducted by Bankrate.com, 63% of Americans don't have even $500 in “emergency savings.” This is a startling statistic and the reason many families find themselves in debt, unable to accumulate wealth. Having the willpower to save a portion of your income is critical. How much a person should save of their income varies considerably depending on their age, income, and goals for the future.  For a child, encouraging them to save at least 20% of their allowance is a good place to start. You might consider “matching funds” to encourage a savings program.

Set Goals

Understanding the concept and importance of saving can be made easier by helping your child set a goal. For young children a new toy might be appropriate and for older children perhaps a new pair of shoes or a bike. Explain to them how much of their monthly allowance they must save and for how long in order to get to their goal.


The earlier you teach your child how to manage money, the longer they’ll have to practice before they enter the real world. Give them allowance to practice with so they understand the finite nature of money and the decisions that must be made as a result. Share with them the important financial decisions you make yourself and the consequences of any bad decisions you made in the past. By helping your child learn how to manage money, they will be better prepared for the future and more appreciative of the things they have now!

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