There’s saving, and then there’s savings. Teaching your child to make the most of savings by spending wisely is just as important as showing them how to save money. This can help them to not only keep their savings account healthy but also to develop good spending habits.
One of the best ways to teach your child how to spend wisely is to start with a budget. This doesn't have to be a complicated process. Depending on the age of your child, you can start by helping them to create a simple budget that compares their income (such as allowance or money earned from a part-time job) with their expenses. By knowing how much money they have coming in and going out, they can have a better idea of how much they have available to spend.
Impulse buying can be a lifelong struggle, but it can be an especially strong temptation for kids who are still learning the value of money. To help your child avoid impulsive spending, encourage them step back and think before making a purchase. Ask them to consider whether they really need the item, and if they do, whether there are any alternatives that might be more affordable.
One way to help you child avoid impulse buying is by introducing them to opportunity cost. Opportunity cost is simply what is lost or given up by choosing one alternative over another. While it isn't necessary for kids to know what this concept is called, many elementary-school-aged children will be able to grasp onto the general idea. This can help them when it comes to making choices between multiple needs or wants.
As an example, imagine that your child is saving money to buy a video game. One day while you're at the store with them, they say that they want to buy a couple of toys they've just seen. At this point, you could take a moment to help them think through this. You might explain that they can buy the toys now and start playing with them once you get home, but then they'd have to wait longer to get the video game as they make up for the money spent on the toys. If they choose to wait and continue saving for the video game, the opportunity cost will be the chance to be entertained with new toys now.
When all is said and done, teaching your child the concept of opportunity cost is simply teaching them how to weigh pros and cons when choosing between multiple options.
Teach your child the value of comparison shopping. If they’re old enough, show them how to research products online, compare prices, and read reviews. This will help them to make informed decisions when shopping rather than simply going with the first option they see.