Holiday spending teaches finances to children

During this holiday season, you’ll likely be spending money, in various amounts and in various ways. You can use this experience to teach your children about money management.

Here are a few ideas for doing just that:

Stick to a budget. Tell your children you’ve set aside a certain amount of money for gifts and holiday events, such as hosting parties, and that you won’t exceed it. And if you have saved money throughout the year in a special holiday fund, let your kids know about that, too. This information should help impress upon them the importance of sticking with a budget and saving for a goal.

Discuss credit and debt. Ideally, you won’t have to use your credit cards to an unusual degree during the holiday season. If you do, though, explain to your children that using a credit card is not the same thing as “free” money, and that your goal is to pay off the card as soon as possible, so that you won’t have to pay even more for your purchases in the form of interest payments.

Compare short- and long-term goals. Explain to your children that your holiday spending is the result of having saved for, and met, a short-term goal, but that you are also saving for long-term goals, such as retirement. Depending on the age of your kids, you might want to go into somewhat more detail, such as describing, in general terms, the different ways you save for the different goals. For example, for your holiday spending, you might be drawing on money from your checking account – or, as mentioned above, a holiday fund, possibly kept in a low-risk, liquid vehicle — while for your long-term goals, you might be relying in part on your employer-sponsored retirement plan, such as a 401(k). The key point to get across is that you have various financial goals in life with various means of working toward achieving them.

Introduce your children to investing. If you’ve already brought up the topic of saving for long-term goals, why not take it a step further and give your children a doorway into the investment world? Specifically, consider giving them a few shares of stock, possibly in companies with which they are already familiar, and help them follow these stocks. One way of giving stocks to children is through a custodial account, which can be opened under the Uniform Transfer to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). Keep in mind, though, that once your child reaches the age of majority – usually 18 or 21 – he or she gets full control of the money in the account. Plus, your gift is irrevocable.

Be generous. If you’re going to make charitable gifts, let you kids know about it – or even let them help pick the charities. It will show them that one purpose of wealth accumulation is to give back to the world.

By providing some financial education to your kids this holiday season, you’ll be giving them a gift that can last long after the festivities have ended.

This article was written by Edward Jones for use by your local Edward Jones Financial Adviser. Douglas J. Drost CFP Financial Adviser for Edward Jones, 2262 Reno Highway.