From a very early age, children can start to grasp some concepts about money. Teaching your children financial responsibility at a young age will pay off in the long run by instilling key values and helping to protect them from making major financial mistakes as they grow and mature.
Even preschoolers can understand that parents work at a job and earn money. Talk about how job choice affects how much you make (for example, it takes many years of school and training to become an attorney). Help them see that you go to work, receive and deposit a paycheck, and then use that money in the bank to pay for expenses such as housing, food, gas and clothes.
Kids have a hard time understanding the importance of setting aside some money now in case it is needed later. To help, purchase a “piggy” bank with separate money slots for giving, spending and saving. Or make your own by labeling or decorating envelopes or jars. When your children receive money – from an allowance or gift – help them allocate into each category.
When your children ask for something that you do not want to buy, provide a reason for saying no, such as: “Buying that item is not in our budget.” Talk with your child about using their own money to make the purchase, or about why the purchase is not a good idea. If it’s something they can purchase, help them figure out how much money they have to allocate toward the purchase, how much more they need, and how long it would take to earn that amount.
Kids need to associate dollars and cents with purchases. Pay in cash for at least some items when your children are with you. It will help them connect actual money to actual spending. And if you use plastic for a store purchase or to withdraw cash at an ATM, show your child that you are subtracting that amount from your bank balance.
Your kids will learn from your example. Talk about, and then implement, ways to live within your means. It may start with carrying a water bottle instead of buying a fast-food drink and cooking at home instead of dining out.
Remember that the real key is action vs. talk. Like every other area of life, kids will pick up financial habits from their parents. If you argue with your spouse about money, or overspend, that’s what you are teaching your children about money management.
Don’t worry them about whether you can pay bills, but do let them know money doesn't “grow on trees.” Once kids get to their teen years, you can talk with them about how you make financial decisions. If parents talk about, and share, some of the decision making in vacation plans and household spending priorities, they will give the kids a basis for good money management in their future.
The concept of delayed gratification has been proven to help kids understand everyday finances – from saving for the toy they want to saving for retirement. For very young children, this means that they will live if you tell them “no.” Perhaps they can’t have every toy they want all the time, but rather can choose one for a special occasion. For an older child, it could mean providing an allowance so that he or she can save for a desired item. Teens might even have a separate page of the family budget.
Even young kids need to get in the habit of saving a portion of any money they receive. One good rule of thumb is that 10 percent goes to some form of charity/giving, 20-50 percent goes to savings, and the remaining is available for spending. As kids get older, they can open bank checking and savings accounts that you manage.
Look outside the box. Games such as Life and Monopoly can be fun ways to teach financial concepts to kids. Do a little research and identify one or two of the very good websites and educational software programs out there that focus on teaching money skills to children.
Parents can teach financial responsibility in a way that is interesting for children. Most important is remembering that parents are their children’s role models. When kids see you budgeting, saving and spending carefully, they will learn those skills.
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