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7 Ways To Teach Your Spoiled Child About Money Management

7 Ways To Teach Your Spoiled Child About Money Management

If you’re counting on the public school system to teach your children about money management, prepare to be disappointed. There is only one person with the power to turn your spoiled child into a fiscally responsible adult: you. Here are seven tips that might help.

1. Don’t tie allowance into every single chore—

Household chores should be done without expectation of payment. Tying your child’s allowance into the simple act of cleaning house is a sure-fire way to raise your child to become a messy adult with a home so disgusting that no one would ever want to visit. Instead, explain why a clean house is a nice thing to have. You could say something like:

“I know mopping floors and cleaning counters might not be exciting, but we need to clean up once a week, because it is easier to have fun and relax when there are less messes to worry about. Also, if we don’t take care of the kitchen, bugs could get to our food, and isn’t that gross? It would make me feel really good if you helped me take care of that.”

2. —but offer incentive for tackling challenging tasks.

While you shouldn’t bribe your kids to do chores (something they should do for no financial reward), you should offer incentive for tackling projects that require more time and initiative. You could set a flat-fee for more complicated tasks like mowing the yard, organizing the closet, and boxing up unneeded clothes and toys for a yard sale or charity drive. Feel free to take this a step farther by encouraging your child to open their own lemonade stand or yard-work business. You’d be smart to teach them how to market themselves at a young age, because a college degree doesn’t guarantee a good job in today’s economy.

3. Draw a diagram to illustrate your family’s priorities.

It’s difficult to explain fiscal responsibility to children in words that they will comprehend, so why not draw a diagram to illustrate fiscal responsibilities in a way they can understand? You don’t need to be a Michelangelo or Donatello; just draw an inverted triangle like this:

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inverted-triangle

    Then list your expenses in the order of their priority like so:

    • Shelter (rent/mortgage)
    • Food, clothes, and other groceries
    • Utilities (heat/air conditioning, electricity, water, phone, Internet)
    • Savings/Investments (emergency expenses like doctor visits, long-term investments like vacations to theme parks and beaches)
    • Charity/Giving (helping those who are less fortunate)
    • Wants (ice cream, toys, movie tickets, video games)

    While it’s okay to spend money on things your child would like to have, you need to make sure they understand the key difference between “needs” and “wants.” Using the inverted triangle as an illustration, explain that your family has an awful lot of needs that must be met before you’re able to consider your child’s individual wants. Repeat this lesson as often as necessary, because it’s vital for your child’s long-term financial success.

    4. Use three separate piggy banks: saving, giving, and spending.

    This tip is repeated often enough to be obvious, but it’s obvious because it works. Get three piggy banks (or anything else childlike that money can be stored in), label them as listed above, and set a percentage for each category like so:

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    • Saving = 50%
    • Giving = 20%
    • Spending = 30%

    I’m not suggesting you must use those percentage points listed above; see them as a general suggestion, not a strict guideline. Set them in your own way that fits your personal beliefs about how money should be spent, and/or what you feel would be most beneficial to your child.

    5. When appropriate, turn those piggy banks into interest-earning savings accounts.

    Children seem to learn better visually at a young age, so I’d recommend using the piggy bank approach until they are old enough to grasp the concept of “interest-earning savings accounts.” When you feel they’re ready, take them to the bank to open their first savings account. Make sure you explain why this is a good thing for them to do by saying something like:

    “I’m so happy and proud of you for saving (Insert Dollar Amount Here)! But now we’re going to put that money in a credit union, because they will pay you a little bit extra just for being smart enough to save your money.”

    Share a bank statement with them quarterly and make a big deal out of how well they are doing by pointing out how many dollars they made in dividend, and exclaim, “Wow! If you made that much with the x-dollars you put in there, I wonder how much you can make if you invested y-more-dollars every time you get paid your allowance?”

    6. A thoughtful gift is better than an expensive one.

    Have you ever really watched your child while they open presents during Christmas or their birthday? If they are ripping away wrapping so rapidly that they don’t even take a moment to react to each individual gift before moving on to the next one, you might have a spoiled child who doesn’t appreciate anything. If you don’t think thoughtful gifts are better than expensive ones, please recall a baby (yours or otherwise) who you’ve seen open an expensive toy, only to find the box it came in much more fun to play with than the toy itself. Materialistic stuff never made anybody happy, so stop buying your child every shiny, new thing under the sun, and start focusing on more frugal (but thoughtful) ways to express your love.

    7. Use grocery shopping to illustrate buying for value.

    Just in case you weren’t aware, there isn’t typically any difference between name-brand labels like Green Giant green beans and the generic variety offered by your grocery store. Use this opportunity to teach your children how to shop for value. Present them with two identical groceries—for example, an expensive name-brand jar of peanut butter and a more affordable generic variety—and ask them which one sounds like it would be a better deal. For bonus points, use this exercise while they are learning basic math, because they will find the subject more interesting (or at least less boring) when they understand how it applies to their life.

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    For a list of cheap and healthy foods, grocery savings tips, and a full-length shopping list you can print and take to the store or download to your phone, click here.

    It’s easy to end up with a spoiled child who doesn’t appreciate anything if you let them have everything they want. Follow these seven tips to raise your child in a positive way that helps them become a fiscally responsible adult.

    Are there any extra tips you would add to this list?

    Feel free to pass this article along to any parents you know who might be helped by it!

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    Daniel Wallen

    Daniel is a writer who focuses on blogging about happiness and motivation at Lifehack.

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    Last Updated on September 2, 2020

    How to Set Financial Goals and Actually Meet Them

    How to Set Financial Goals and Actually Meet Them

    Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

    In this article, we will explore ways to set financial goals and actually meet them with ease.

    4 Steps to Setting Financial Goals

    Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

    1. Be Clear About the Objectives

    Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

    It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

    Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

    2. Keep Goals Realistic

    It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

    It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

    3. Account for Inflation

    Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

    Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

    For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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    4. Short Term Vs Long Term

    Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

    As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

    By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

    How to Achieve Your Financial Goals

    Whenever we talk about chasing any financial goal, it is usually a two-step process:

    • Ensuring healthy savings
    • Making smart investments

    You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

    Ensuring Healthy Savings

    Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

    This is the focal point from where you start your journey of achieving financial goals.

    1. Track Expenses

    The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

    Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

    If you’re not sure where to start when tracking expenses, this article may be able to help.

    2. Pay Yourself First

    Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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    Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

    The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

    Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

    3. Make a Plan and Vow to Stick With It

    Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

    Nowadays, several money management apps can help you do this automatically.

    At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

    Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

    You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

    4. Make Savings a Habit and Not a Goal

    In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

    Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

    • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
    • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
    • If you go shopping, always look out for coupons and see where can you get the best deal.

    The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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    5. Talk About It

    Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

    Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

    6. Maintain a Journal

    For some people, writing helps a great deal in making sure that they achieve what they plan.

    If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

    When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

    Making Smart Investments

    Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

    1. Consult a Financial Advisor

    Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

    Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

    2. Choose Your Investment Instrument Wisely

    Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

    Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

    As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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    3. Compounding Is the Eighth Wonder

    Einstein once remarked about compounding:

    “Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

    Use compound interest when setting financial goals

      Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

      Start saving early so that time is on your side to help you bear the fruits of compounding.

      4. Measure, Measure, Measure

      All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

      If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

      Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

      The Bottom Line

      Managing your extra money to achieve your short and long-term financial goals

      and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

      More Tips on Financial Goals

      Featured photo credit: Micheile Henderson via unsplash.com

      Reference

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