How to Teach Your Kids About Money


teach your kids about money

No matter how good a formal education you provide for your children, or even how great a career you can set them up in, if they don’t have an understanding of money management, they’ll enter the adult world at a major disadvantage.

Since they won’t learn money management in schoolâ”or even in collegeâ”it’s even more important that they learn it at home from you, the parent. Equally important is learning it early. Successful money management is mostly about good habits, and the ones learned in youth are the ones that will follow them throughout life.

How do you begin teaching your children about money?

 

Cut back on what you’re buying them

On my first day of class for a college Economics 101 course my professor declared that the definition of economics is the allocation of scarce resourcesâ. So it is with children and money. The sooner they realize that what they want needs to be paid for out of limited–or scarceâ”monetary resources, the quicker they’ll grasp what you’re trying to teach them.

There’s often the tendency to default to saying yes❠when our children want something, but from a financial training standpoint that isn’t the best course of action. By saying noââ”which makes what they want scarceâ”they begin to learn both the value and the cost of their desires. If they want something badly enough, they’ll begin planning how they’ll pay for it out of their own resources. Make too much available too early, and that lesson is never learned.

 

Show them how much the things they want will cost

We can sometimes shield our children from the cost of living, and while it’s never a good idea to throw more at them then they can handle, we can and should begin by getting them familiar with the fact that the things they want will cost money, and about how much. As a matter of self-interest, they can grasp at least that much.

Once they start assigning cost to the things they want, they’ll begin to understand the centrality of money in living life. Saving for goals will be a logical next step.

 

Let them buy some things they really want

The sooner junior starts buying what he wants, the sooner he’ll begin to realize how important it is to save for what he wants. That doesn’t mean you go cold turkey on buying things for him, but rather that you decide that certain purchases must be made by him as a learning experience.

 

Give them an allowance but set spending priorities

An allowance should be viewed as a learning tool. You’re actually giving money to your children with an allowance, so it’s important that you put certain limits on how and when it will be spent. Some should be allocated to savingâ”maybe in a money jar so she can see it growâ”and some to free spending.

By requiring that a certain amount be held back for saving, you’ll be demonstrating the fine art of accumulating money to your children. By allowing it to grow until it’s enough to by what she wants, you’ll be showing her the rewards that saving money brings.

 

Start a savings account, and let them track the balance

Starting a savings account early is one of the most constructive financial lessons to teach a child, especially if they participate in the growth. At a minimum, the child should allocate a certain amount of windfall moneyâ”gift money from holidays and birthdays for example. Eventually, saving out of allowance and earnings should be added.

A rising bank balance can motivate an older child to save more, but a younger one will probably need graphics to provide a picture of what’s happening. Look into simple software programs that will track savings growth using graphs or charts. A young child may not be impressed by increasing numbers, but he’ll quickly grasp the concept with pictorial format.

 

Teach the importance of earning money

Ever notice that some kids strive to earn money by the time they hit middle school while others barely seem to make the connection when they graduate from college? The early starters probably made the work-equals-money connection sometime before finishing grade school.

While it’s possible that a child may figure this out on his or her own, more likely they won’t unless they’re taught by their parents.

For that reason it may be best to have a certain set of chores for children to doâ”chores for which they’ll be paid over and above their allowance. While they should be expected to keep their rooms clean and help with routine chores such as setting and clearing the dinner table, other more demanding assignments can be set.

Set up pay levels for certain jobs, like cutting the lawn, vacuuming the carpets or even doing the laundry. These will provide children with the ability earn and save money for purchases they can’t afford on their allowance alone, and also cement the connection between work and money.

Once that connection is made, the future will bring good thingsâ”and lots of them.
Be intentional in teaching your children about moneyâ”you’re probably the only one they’ll learn it from.

 

(Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog,  Out of your Rut. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids)

Written by Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER
and FACEBOOK
. Happy investing 🙂

Jon the Saver

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEED or EMAIL updates. You can also find me on TWITTER and FACEBOOK . Happy investing 🙂

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