For some parents, the simple idiom of money doesnt grow on trees sums up the total of what needs to be said when it comes to money matters and children. On the other hand, while the pithy saying does temporarily prevent a purchase, it hardly teaches children financial responsibility.
With hundreds of thousands of young adults between the ages of 18 and 24 declaring bankruptcy, or saddled by student and credit card loans before they even graduate college, it is imperative that parents teach their children responsible money management skills. Instilling sound money practices in your children is one of life’s most important lessons—and it is an education that cannot be learned in school and is never too early to learn.
Start teaching your children the importance of financial responsibility while your children are young, as well as the difference between “want” and “need.” Here are a few ways on how to educate your children in the matters of money, and prepare them to be financially responsible adults:
Specifically, teaching your children how to manage their money—from earning to saving, to budgeting and spending—is an important step to prepare them to be financially responsible. For some great ideas on how to teach your kids about money, check out our guide below.
Let them earn money
There’s nothing like practical experience to drive home a point. Provide your child with an allowance that is earned by doing household chores. This teaches him/her to associate work with money and learn the value of the dollar, as they invest time and energy in order to earn the allowance.
However, don’t reward your children with money for good performance in school and extracurricular activities—they should be motivated to achieve for reasons other than cash in those arenas. Additionally, don’t use an allowance as a means to discourage bad behavior, as you want your children to learn to behave properly, regardless of whether or not there’s money involved.
When your children get older, allow them to take on traditional (or nontraditional) jobs available to pre-teens and teenagers. Babysitting, tutoring, mowing the lawn and working part-time oddball jobs all offer excellent early work experience for adolescents.
Track spending and develop budgets
Once your children are earning money, have them keep a diary of their spending for a few weeks. By having them write down every penny they spend, they develop a better understanding of where their money is going and how quickly the money can be spent.
For older children with larger “incomes,” help them develop budgets after they’ve figured out where they spend their money. Teach them how to look at their finances in a realistic manner—if their spending skews heavily towards frivolous items, remind them that normal household expenses, like rent and food, would prevent them from putting a large percentage towards entertainment.
Set a savings goal
With younger children, encourage them to save by establishing a goal. Once the goal is reached, allow your children to use that money to spend it on a larger item they want to buy. Using calendars, charts and fun stickers, you can even turn the savings goal into a fun game or a competition between siblings to see who can reach their goal first.
Older children are likely to have bigger prize items, like a car or a trip. Have them set up a savings account and consider a “savings match” plan to encourage them to save extra money. Not only does this incentivize saving money toward a goal, but it also gives your children a hint of the effectiveness of company 401K matching programs.
Use games to make the process fun
Tips For Teaching Kids The Value of Saving MoneyGames are easy ways to sneak in money management lessons and make the experience more entertaining and enjoyable. Whether you choose old school board games, like Monopoly or Life, or use video games or online sites children will enjoy financial lessons much more in the context of a game.
Teaching your children how to manage their money—from earning to saving, to budgeting and spending—is an important step to prepare them to be financially responsible. These early valuable lessons can help them save for large purchases like a house and help them avoid the credit card trap and stay debt free. As children start to understand and appreciate the concept of money, they can be introduced to the idea of lingering debt versus financial freedom. Although there are organizations set up to help people who struggle with finances, these can be avoided altogether by learning to be money-wise at a young age. By teaching your children money management skills, you will help ensure a more secure future for them.