Money management is controlling your personal finances! Money management is the process of budgeting, saving, investing, spending or otherwise in overseeing the cash usage of an individual or group. Do you contribute to your retirement? Do you have a budget? Do you pay your credit card balance every month? If you can answer yes to these questions, you are a good money manager!
No, I did not teach my children how to budget when they were five or six years old! I did teach them elements of budgeting by giving them chores and an allowance. I taught them about spending, saving, investing, setting goals and making good choices. I encouraged savings and working toward goals. They worked and saved their money for their first car. There were many teachable moments along the way for them to learn money management. Money is not the only way to learn how to achieve success.
Budgeting is just a structure for achieving your financial goals. There are other structures that help us learn how to achieve success. It was school, sports, scouting, clubs, friends, peers, adults, parents and role models that contribute to achievement. Budgeting is based in setting goals, but it is not the only place to learn those skills. You learn a variety of skills in school which teach you success. For example, you master a subject by working at it, practicing the skills and applying those skills.
Money management starts very early! Little things like using a piggy bank or savings account will teach you to be thrifty. I think it is the first opportunity for a child to form a goal regarding money. My children were required to save fifty (50%) percent of any money they received. What is interesting is they did not suddenly spend their savings. I motivated increased savings by matching any savings for their first car. Children can learn the beginnings of money management through savings.
A typical savings account does not yield much! In this low interest environment, savings will not keep up with inflation. You can invest in certificate of deposits, money market funds or savings bonds, but the interest is very low. If you need those funds short term (5 years or less), those are your choices. If you are saving and investing long term, you have many more choices. You can learn about investing by finding familiar named stocks and invest in the stock market. A few shares of McDonald’s are a better choice than eating at McDonald’s.
Is spending a skill? I believe it is not only a skill, but an important one to learn. I admit, I probably learned that skill for m the best. My parents were really good at getting the best prices on the things they needed or wanted. They used good old fashion bargaining skills! They bought most of the things they needed wholesale or discount through connections they made over the years. I learned how to shop to get the lowest price. The internet has made it much easier for the rest of us.
Try teaching children how to shop better and they will think they should just spend their money. Instead, my wife and I tried to expose them to what we did as role models. My children went to work with us before it was fashionable! They were included in decisions regarding spending or not spending when appropriate. They made choices between two good choices and discussed the pros and cons of each. For example, they could have something today with restrictions or wait and have no restrictions.
Learning how to spend is not just getting the lowest price! Sometimes, you have to put off the purchase or decide not to purchase at all. You have to evaluate if you need it or just want it. Making good spending decisions goes way beyond the product or service. Do you have the money or will you need to go into debt? Buying a home is one of those decisions. How much can you afford versus how much home do you need? Learning to make small spending decisions is the practice or training to make better and bigger decisions.
The axiom of spending less than you earn is just one indication of good money management. Debt seems to be just part of life according to government statistics! I grew up with parents who made it through the Great Depression! The only debt they ever had was their first mortgage. Their first house was a custom built home in New York City for $10,000 in 1929. A small fortune at the time! They had a mortgage payment of $85 per month. It was the last time my parents had debt. My mother never had a credit card until the 1970’s!
With role models like that, did I rebel? I believe in leverage in finance! A mortgage leverages your down payment so you can buy real estate. It can be very risky if you overpay such as during the real estate bubble. Teaching children how to use debt for assets successfully is not an easy task. Modeling this spending behavior and discussing the spending decision is helpful. If successful, they learn good decisions and when unsuccessful, they learn from mistakes too.
Shopping in itself is not something you do as recreation or as a pick me up when you feel bad. Going into debt to have one more shirt, jeans or piece of jewelry is stupid when you add the high interest and debt to the decision. My children learned to save for their wants and use their limited income to make good choices for what they needed. How did they do it? They made many decisions in a controlled environment by giving them good choices and saying no when needed.
Becoming a good money manager takes a lot of work! It takes ten thousand (10,000) hours of preparation, guided practice and training to become good at something. It generally starts early and you can do something about it. As parents, you should help your children become good money managers as they grow up. It is hard to avoid money similar to food, so you might as well learn how to be good with it. Money management is a learned skill that starts in childhood!
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