Most Parents would agree that teaching their children the value of money is important yet according to a recent study, more are prepared to talk with their child about sex, drugs, and alcohol. By following these simple strategies you can help your child develop money management skills that will last a lifetime.
Talk to your kids about money. When you use a credit card explain to your child how credit cards work. When your statement arrives in the mail take the time to sit down with your child and show them how long it will take to pay off the card if you only make the minimum payment. Explain what happens if you forget to make your payment on time but also explain the benefits to your credit rating by making payments on-time. It is important for your child to understand that credit cards have an important purpose but it also comes with a responsibility to use them wisely.
Include your children in monthly family budget meetings so they can begin to appreciate the resources needed to run a household. Share what is appropriate for the age of your children and avoid discussing topics that may cause disagreement.
Explain how the ATM allows you to withdraw money that you earned from working hard. Children need to understand that an ATM is a convenience and if not properly used, can result in fees and overspending. Take your child shopping and explain prices in terms of their allowance. When you purchase a toy or favorite food item for your child, show them the receipt and explain how many weeks worth of allowance it would take to purchase the item.
Setup a savings account for your child and have them make regular deposits with their own savings. A great way to teach your child the value of money is by giving an allowance. By giving your child an allowance in exchange for chores around the house, you will be helping to teach your child the value of money. It is difficult for your child to understand the hard work necessary to provide a home and the material things so easily taken for granted. You can provide incentive for your child to save by matching a percentage of every dollar of their allowance deposited in the bank.
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What advice would you give when teaching a child the value of money?
What’s your allowance policy… pay by chore or fixed rate?
Fixed rate. We tried the pay by chore method and my son decided he would then choose which chore he would do. As in the real world they don’t get paid until the job is done right.
We do most of what you suggest but the going wasn’t great. In fact our son (ten at the moment) decided two years ago the because we changed the finance management we are poor. There was no way to explain otherwise until…we bought Cashflow. After two games he came to me and said: now I know that we are not poor, it is just that out cash flow is on the low side because our outgoings are high. Result!
I have heard of Cashflow but have not purchased it. Might make a good Christmas present. Thanks for sharing Maria!
You have brought up some excellent suggestions for teaching kids about money. One thing that I would add is to give kids the opportunity to practice their own money management. Whether you give an allowance or require that the kids do jobs to earn their money, they can learn to save, invest, share and spend wisely. They will definitely make mistakes along the way but can learn just as much through the mistakes as they can through the successes. It is better for them to make mistakes while they are young and the consequences are minor. There are many online, virtual family banks that can help kids & teens learn to keep track of their money and IOUs. (Full disclosure — I am a bit partial to http://www.moneytrail.net)
I’d emphasize the benefits of saving and working hard to have more options in life. I’d also want my kids to understand the importance of giving back and not just thinking about their own wants. -Sydney
I lean more on explaining the value of acquiring income from hard work. I keep instilling in my children that discipline is one important factor in working, whether it’s a business or a regular employment. They each have their own savings account, where their savings from regular allowances are deposited and not to be withdrawn for flimsy reasons.
Great point Amy! Being responsible for one’s own needs and wants is also important. My daughter recently lost her cell phone so to help her with being responsible she had to pay the insurance deductible.
Stocks can be an easy one since kids tend to be geared towards particular brands. They won’t understand a company like Exxon but can easily recognize and get excited about McDonald’s.
“Include your children in monthly family budget meetings so they can begin to appreciate the resources needed to run a household.” – This is something new but definitely worth trying. It could lead to disaster if not done properly as your kid may share the info with his/her friends. Also, don’t forget about the taxes. They would need to know how it affects their expenses/savings.
I think the main part of this is communication. As long as you are honest and willing to guide your children to responsible money management, then I think it’d definitely be effective.
I agree JG that including kids in on family budget meetings needs to be handled carefully. I think it is entirely appropriate to share what the budget is for movies and entertainment and discuss options so the child can begin to appreciate that money is limited and that spending should be planned.
The first step is definitely to realize that YOU need to educate your kids about anything financial because our public schools certainly aren’t. I bring this up at every educational meeting and get shot down as – “That’s not something we need to teach in school.” I think this is totally irresponsible (bordering on the idiotic) of educators, but hey, at least there is resources like this for parents to use going forward!
I agree with you that in the ideal world Schools would give instruction on financial literacy. Until States provide the funding for this instruction schools will continue to teach exactly what State Legislatures require them to teach!
You made several great points about what parents should do with their kids about money. I really like your idea about explaining the price of toys they want in relation to their allowance. Bottom line is that we need to spend time and explain about money but many times parents either do not have time or just procrastinate.
I don’t believe in “allowance” for children. Sounds too much like entitlement to me, which could lead to a welfare mentality later in life. In my opinion, it is better to pay a “commission” for completing certain tasks. If you insist on giving them an “allowance,” in the traditional sense, why not consider calling it something else? Something that doesn’t promote an entitlement mentality!
I don’t think it matters what you call it. If you give money to your child with no strings attached they will feel they are entitled to it. If you clearly define your expectations and require your child to be responsible for their own things and to complete chores then an allowance is appropriate.