During the 2018 holiday season, consumers expect to spend more than $1,000 on gifts, holiday food and decorations, and non-gift purchases (e.g., Black Friday deals), according to the National Retail Federation. With so much spending expected during the coming months, now would be an excellent opportunity for teaching your children good financial habits.
To help inspire you, we’ve prepared the following list of four good financial lessons you can teach your children over the coming months. But don’t forget that these are also good lessons for yourself, so remember to apply them in your own life if you aren’t yet doing so.
Article at a Glance
- The holidays provide the opportunity to teach your children important financial lessons that they will remember for the rest of their lives.
- Teaching your children about budgeting, the importance of shopping around, the difference between savings and debt, and the difference between consumption and investment are all possible during the holiday season.
- While you’re teaching your children these financial lessons, remember to apply them to your own finances to avoid trouble down the road.
- Four Financial Lessons You Can Teach Your Children This Holiday Season
- Reminder for Parents: Don’t Let the Christmas Spirit Put You in the Red
Four Financial Lessons You Can Teach Your Children This Holiday Season
1. Make a Budget
One of the most important skills that parents can teach their children is how to make a budget. Children don’t intuitively understand that money is a limited resource. For all they know, you actually do have a money tree hiding somewhere. The holidays are a good opportunity to introduce them to the concepts of scarcity and making your dollar go as far as it can.
For younger children, you might simply give them a gift allowance and help them figure out how to fit all the gifts they want to buy for others into that amount.
For older kids, it might be better to let them watch as you create a budget for yourself, showing how much of your income must be set aside for housing, utilities, groceries, and similar expenses, and how much that leaves over for holiday spending.
2. Don’t Buy on Impulse, But Shop Around for the Best Deal
Another planning-related lesson for your children can be the need to shop around for the best deal. If a new PlayStation is in your budget this year, for example, don’t just run out and buy it from the first store you come across. Do some research online to find out what kinds of deals other sellers are offering.
Then, teach them to consider how best to use the savings they’ve realized by taking that approach. Maybe they can buy another gift, or maybe they can save the difference to use another time.
And speaking of saving:
3. Save For the Holidays Rather Than Relying on Credit
With proper planning, you can save money before the holidays to cover your holiday-related expenses. Without proper planning, you may feel pressure to spend on credit for the holidays to be able to do everything you were hoping to.
Walk your kids through the financial impact of the decision whether to buy using savings or credit. Teach them about interest rates, and how they can help you if you’re saving—or bury you if you’re spending on a credit card.
If you give your children a regular allowance throughout the year, you could even give them that choice for themselves. Tell them that they will have to budget for others’ gifts out of their own regular allowance, but then offer an advance on future allowances that they will have to pay back through reductions in future weeks. If they choose the latter option, they’ll probably start to rethink it once they begin paying back their holiday spending spree.
4. Understand the Difference Between Investment and Consumption
Finally, you can teach your children the important difference between consumption and investment. It’s natural to want something that provides an immediate consumptive value—something you can enjoy right away. Toys, electronics, clothing, and similar gifts are all of this sort.
In contrast, other types of gifts aren’t meant to provide enjoyment immediately, but can prove to have a more lasting impact. Savings bonds and stocks are examples of this type of gift. By teaching your children to appreciate the value of these kinds of gifts—even though they can’t see that value right away—you can help set them up for a stronger financial future.
Reminder for Parents: Don’t Let the Christmas Spirit Put You in the Red
The holidays are a time of giving. So, it’s only natural to temporarily set aside concerns over our own finances to lavish our families and loved ones with extravagant parties and gifts. But as fun and memorable as that may be, it’s also a recipe for financial catastrophe. The enjoyment we have in November and December shouldn’t lead to frustration and stress come the new year.
So, as you’re teaching your children these and other important financial lessons, remember that you can also apply them to your own finances. That will not only help you avoid a dreary January, but also reinforce those lessons for your children when they see you lead by example.