If you are a parent, then you are well aware that raising kids is expensive. As a parent, you are responsible for providing everything financially for your child. You need to provide a home, food, clothing, health care, dental care, and the list goes on and on for many years. One valuable lesson to teach your kids is how to manage their own money. It’s never too early to start teaching them the value of a dollar. It’s also never too late to teach them. There are many techniques for teaching kids money management. Discussed in this article are seven of our favorite ideas.
The first step is critical: be a good role model. The kids are watching you and are more likely to copy your actions than listen to a lecture. If you are a financially responsible person who can live within a budget, then your children are likely to absorb ideas from your behavior about being responsible with their own money. On the flip side, if you are constantly complaining about a lack of money or have great debt due to poor spending habits, then they will learn that behavior, too.
The second step is to provide an allowance for your children. Teach them to keep their money in a wallet, a safe, or another secure spot. They should learn the responsibility of keeping track of their own money. Another part of this step is to teach them how to count money. When a child possesses their own funds, they will be able to have more say-so in purchases they wish to make.
Step three is to teach the children about creating a budget. An example of this is when your child has a specific item they would like to purchase or an activity they would like to participate in. Allow them to provide some of their own funds to put towards the cost. You can teach them that if they want something that costs a certain amount of money, they need to save a certain amount. Don’t forget to include extra for taxes or tipping. This is another part of learning budgeting.
Step four is to provide your child opportunities to earn “extra” money. In addition to giving them an allowance so they can learn about money management, give them a chance to “earn” more money by doing extra chores, helping take care of someone else, or working at something more challenging than the norm. Hopefully they will feel a sense of accomplishment from putting in the extra effort.
Step five involves a “field trip” to a bank. Take your child with you inside the bank and show them where personal bankers have an office, where tellers work behind the counters, and the bank vault. With the busy lives that many of us lead these days, going inside an actual bank can be somewhat of a novelty. It has become much more routine to use the drive-thru, the ATM, or the online banking site. When you have your child at the bank, plan to open a simple account in their name. Most banks offer a minors-only account, if a parent cosigns their name on the account. Furthermore, encourage your child to deposit some of their allowance into the account on a regular basis—maybe monthly or quarterly. You may even wish to set up a plan to match the amount that your child deposits, especially if it is a savings account.
The sixth step can be a little tricky for some adults, but the idea is to teach your child financial responsibility by talking with them about your own finances. You don’t need to divulge all of your personal information, but you can teach quite a lot if you talk with them about income, mortgages, car payments, insurances, retirement funds, college savings plans, loans, credit cards, stocks, and the list continues. If you do not wish to use personal specifics, use an arbitrary number as you explain finances to your child. Only talk about issues you are comfortable sharing. A graph or chart may be a useful visual tool.
Lastly, teach your child to have a little fun! Financial responsibility is a big deal. It’s a lot to learn and can be overwhelming. There are so many nuances about where the money comes from and goes, how much one needs, how to plan personal goals, and so on. It is easy to become bogged down with all of this information. Sometimes, to keep things in perspective, it’s OK to splurge on something frivolous. Perhaps treat yourselves to ice cream, a lunch date, or a trip to their favorite store for an unplanned purchase. There is also a lesson to learn with some unnecessary spending, and that is “always save something for a rainy day.”