Teaching children about money is one of the most important tasks to fall upon parents. While it’s difficult for even some adults to take control of their finances, it’s imperative to start teaching children early in their lives how to manage and respect money, and how to make it work effectively for them as they move forward through life.
- Teach the Value of Money. Take your children shopping with you and let them see the money transaction. Talk about how much items cost and how buying bulk saves money. When they are old enough (around 5 or 6) start paying them a small allowance with light household tasks involved. They will be able to correlate how much work and effort equals $1, and what that can get for them in exchange.
- Set Money Goals. Kids always want something, and it’s usually a video game, a bike or maybe even in a cat tower for their pet. Sit down with them and decide which store has the best price and how you will work together to save up to make the purchase. Be certain that it’s a financial journey for them. That is, it should take at least a couple of weeks or a month before they can buy it. This will teach them patience and will lessen the need for immediate gratification.
- Give them Chores. Age appropriate chores accomplish several things. They are a great way to give a child responsibility, to make them feel like they are helping the family, and also so they can make a little bit of money. You can choose to pay them with cash or a Visa gift card, which they can easily save (they might feel more impulsive to spend the cash). You can personalize the Visa gift card with a picture and text of your choosing such as, “Great Job!” Set up a system so they know how much money they should put into savings, how much they can spend, and how much they can contribute to a nonprofit of their choice.
- Have a Yard Sale. When your children see that you are able to let go of items instead of keeping things that aren’t being used, they will understand that they can let go of their unused items as well. Commit to one or two yard sales every year and ask your children what they would like to add, and at what price they would like to sell their items. Point them to old toys and old clothes, craft supplies and anything else that might be cluttering their play rooms and bedrooms. The items that don’t sell, take to Goodwill or other charitable center.
- Use Coupons. Before heading out for the weekly shopping, have your child help you decide on the meals, snacks, and anything else that you need. Ask them to clip coupons, and then have them handle the coupons while at the store. They can find the item, see the price, and figure out how much it will be when the coupon is applied. This practice will lead to wiser spending decisions in their future.
- Introduce them to Credit. Once they get to be teenagers, you’ll want to steer them toward more independence. There are a couple of avenues to take. Some banks offer credit cards that are secured, that is, the card holder prepays and then uses the card, fully able to pay it back with what is already in the account. This lets the teenager build their own credit. Another strategy is to allow your teen to be an authorized user on one of your credit cards, which should be used for emergencies only. This will help them become more responsible with credit cards.
- Discuss Wants & Needs. Part of being responsible is to know the difference between items you want and items you need. Given teenagers don’t have as many financial responsibilities as adults do; it’s easy for that line to blur. When they are able to manage additional responsibilities like half of the payment for their cell phone, fuel, and car insurance, passing the torch to them isn’t a punishment, it’s a means of understanding the true value of money, the difference between wants and needs, and delaying instant gratification.
- Let them Make Mistakes. There is always a bit of failure in learning. Making mistakes is part of life. Allow them to learn from their own financial mistakes, but always be there to adjust them and set them back on track. They should always be earning, learning, investing, and saving.
As early as possible, get your children started on the journey of learning good financial responsibility. Giving them opportunities to learn about prices, the value of a dollar and the work it takes to earn that dollar is the best way to propel them toward financial independence.