Oftentimes, the habits we develop as children stick with us throughout our adolescence and beyond. This is why teaching kids smart financial habits while they’re young is an important step to help them establish a strong financial foundation. Once that foundation is created, children can grow into adults who know how to make smart decisions with their money. This can reduce their chances of falling into debt and mismanaging their funds when they’re older.
So what better time to teach these skills than during the holiday season? A time when shopping and sales are at an all time high, and the pressure to spend money is prevalent. This is the perfect opportunity to teach children how to budget, save money, and look out for scams, with real world examples that will inevitably affect their lives. By using the holidays as a learning opportunity for kids to learn financial literacy, you can help them create smart habits early on that shape future adult spending.
“Wants” Vs. “Needs”
A defining factor of shopping at any time of year is differentiating between a want and a need. For children, this can be a difficult concept to grasp, but adults use this strategy often when they spend their money. And ultimately, knowing when you need to spend money versus when you just want to is a key factor to avoiding debt. Explain to your children that expenses that are non-negotiables are bills like rent, car payments, and credit card bills. Any costs that cover basic needs of living, like groceries or gas for your car, would be considered needs as well. Wants are items that you can go without and it won’t make a negative impact on your lifestyle or budget. New clothes when they aren’t necessary, impulsive shopping sprees, or eating out instead of cooking at home — all of these are good examples of wants.
Children should understand that the goal is to ensure your needs are taken care of, that way you have enough money to comfortably spend on your wants. So how are they expected to tell the difference between these things? The holidays exist almost solely on buying wants, after all. The best way for kids to know which costs are needs, which are wants, and how to afford both, is for them to make a wish list and budget for it.
Creating A Budget
Budgeting is at the center of making smart financial decisions. For children, budgeting for things like their holiday wish lists is a great example of showing them how to manage their money in real time. For example, say your child has an allowance of 20$ at the end of the week. They’re filled with excitement to use this money to buy themselves a toy off their wish list, but you know from their teacher that they need to get a new notebook for class. Explaining to the child that you need to account for the cost of the notebook first, before you can consider buying a new toy, provides a real world example of financial needs versus wants. You need school supplies, and you want a new toy.
Creating a budget to help kids afford their holiday wish lists also encourages them to save their money, because that wish list acts as a savings goal they can work towards. If the notebook costs 5$, this leaves them 15$ to use towards their wants, with room to save if they want to spend more. Aiding them in this process can aid in their financial decision making, and inspire them to make smart decisions to get closer to their goal: spending money on the things they want.
Shopping With A List
Once your child has their wish list created and their budget decided on, the next step is obvious: going shopping! Here, lists are still incredibly important. Explaining to a child that their wish list acts as a guide to what they’re buying at the store is imperative to keeping them from buying impulsively. If taught well, this is an impactful skill that their adult selves will benefit from.
While children can often get distracted by the first new toy they see at a store, it’s important to keep them on track. Explain that they only budgeted for the things they want on their list, therefore they can only spend their designated money on those items. The long term benefits of developing this skill early on is shaping an adult that is less likely to overspend, buy impulsively, and go over budget to accumulate debt.
Teaching kids smart financial habits during the holiday season gives them more than just spending money, it gives them lifelong confidence. When children learn how to save, budget, and make thoughtful choices early on, they grow into adults who can navigate financial challenges with ease. The lessons you share now, even through something as simple as a wish list or a shopping trip, become the foundation of responsible money management in their futures. By making financial literacy part of your holiday traditions, you’re helping your children build healthy financial habits that can support them for a lifetime.
