Along with taking down the holiday decorations, one of our family traditions is to create a financial summary of the past twelve months. Granted, hauling the Christmas tree to the curb may sound exciting compared to analyzing a year’s worth of financial information. Yet, in terms of knowing where your family is going, a financial summary is a vital exercise.
When we first started financial summaries in 1968, everything was on paper. Now I use reports from our Quicken account on the computer. Whether computerized or not, the information is the same: how much money came in, how much went out and where did it go?
When explaining this to your kids, one approach is to put everything in relative terms. Pretend your family is a corporation. Was there more money coming in than last year? Were the expenses higher or lower than last year? What is the expectation for the coming year?
Then you can discuss how your family made financial choices during the year. Did you make changes in the way you spent money? Did you make any large purchases? Have unexpected expenses?
The financial summary can help your family decide how to proceed in the next year. In what areas do can your family make changes to help the bottom line? What does your family want to do with discretionary spending, such as for vacations and recreational activities?
When you explain changes from one year to the next, you help your kids understand that each year is different. If this was a better year for you, your children can sense that. Likewise, they also know if finances are tighter this year.
Kids can understand the reality of the family’s finances without knowing the specific numbers involved. They know they are part of the family. They can adapt to changes, especially if they have some knowledge of what is happening.
If your kids are using a money management system as described in The No-Cash Allowance, they too can do a year-end analysis. By having them add up all the money coming into and out of their account, they can see their own annual summary. What did they think about how they managed their money? What did they think were great decisions? What do they wish they had done differently?
Discuss with your kids their expectations for the year in terms of spending on them? What are their ideas about school, extracurricular and summer activities? What is most important to them? What is not so important?
Do your kids have opportunities (and time) for earning extra money outside the home through activities like yard work, babysitting, pet care and other activities for friends, neighbors or relatives? How will this money affect their spending responsibilities and decisions?
By putting your family’s finances in perspective for your kids, you help them understand the reality of a family’s money. By asking for their input and ideas you are giving them the opportunity to contribute their financial suggestions. All of this helps prepare your children to be better money managers now and in their future as adults.Follow me on social media: