Parents want the best for their kids and strive to provide all of the advantages that money can buy. One often-overlooked need is for children to learn how money is earned and how best to manage their resources. This can leave them vulnerable to the traps of over-spending and borrowing too much. Parents can help their children learn to manage money as soon as they begin asking for things at the store.
They can then build on the knowledge gained to ensure their child’s future financial welfare, and teach them about everything from saving allowance money to the best types of jobs to start thinking about, anything from medical school at Sanford Brown to law school at Harvard. Here are some ideas to start you off:
The Power of Choosing
Teaching children to choose carefully helps them to respect the value of money. Kids are not born understanding that money has to be earned and the parent has a limited supply available. As soon as the child begins asking for things at the store, a wise parent can give choices. Would the child rather have a candy bar or a box of cookies for the same price? Instead of giving in to constant demands, insist that they make a choice of one item.
Let Them Earn Some Cash
Letting children earn at least part of their money helps them understand limits and privileges. It’s tempting to simply give them an allowance, but this is a chance to teach them the value of a dollar in ways most kids don’t understand. A good rule of thumb for an allowance is that it should be limited to about $1 per week for each year of age. Giving children the opportunity to earn extra money helps them to understand how a job works. The parent can then talk about how he or she earns money.
Teach Them How to Save
Helping children save toward a larger purchase can teach them a valuable habit of setting aside part of their earnings. One way to do this is to divide the money into four boxes or jars. Label one jar for giving (about ten percent), one for cash (about thirty percent), one for mid-term goals (about thirty percent) and one for long-term goals (about thirty percent). Dividing the money this way helps them to see the advantages of saving.
Stimulating your child’s brain and helping them understand money is no easy task – but then again, not many kids (or adults, for that matter) can boast this. If it was easy, everyone would have a great handle on their money; the average household credit card debt and over spending habits in America reveal that many people still don’t how to handle their money.
Teach your kids today. You don’t even have to be an expert yourself – educate yourself, then teach your kids what you know.
Definitely teach kids money management. I learned so much from my dad and I still use a lot of his tips today.
Teaching kids about money management is vital to their growth and can help them immensely as they go out into the world. My parents did not teach me and I paid as a result, so we really want to be purposeful about teaching our kids.
We use the commission system with our kids. They do jobs, they get paid. They don’t…they don’t. It has worked very well for sure. Thanks for the article!
If you don’t teach your kids about money, you are doing them a disservice. It is important to their growth and future.
Absolutely, it’s important to teach kids money management. Not only teaching them things, but also teaching indirectly by modeling responsible financial decision-making. Ultimately, parents can’t bail kids out forever – they have to be able to be self-sufficient and thrive on their own when older.
I loved doing chores to earn allowance money when I was a kid. I think parents teaching their kids about money basics and how to make smart choices is really important, especially since schools really don’t cover anything in this regard.
I think the earlier you can start teaching kids about money, the better. My kids are just three and four but they already do chores and earn a little bit for each one, as well as for anything extra they choose to do. I try to use sites like http://www.bankaroo.com to get them to track what they have (site is free, btw), and we play money games in stores and stuff. It can be fun!
Christopher, your points are all spot on. Children want to learn just about anything they perceive as being ”adult”. With five children, it seems that a teaching moment about personal finance crops up at least twice a week around my house. Shying away from them would only harm the kids.
@ Jerry – I echo your sentiments…so many try to protect kids and not let them learn about money…but they are really doing them a disservice.
Great post! I hope to teach my daughter all of the personal finance lessons that I didn’t learn when I was young. I’m hoping by the time she starts college she will have no debt and enough money saved to pay her way through her bachelor’s degree!
A while back, I wrote down five things I wanted to communicate to my kids about money:
1. Talk about making choices.
2. Acknowledge that money is limited.
3. Discourage debt.
4. Encourage critical thinking.
5. Avoid impulse.
@ SB Quite the plan you have laid out. I think impulse is the hardest for me to overcome.