Schools do not really teach kids about personal finance issues. So the sole responsibility of educating your children about money falls onto you, the parent. Pretty early in life kids realize that things (like toys) cost money and parents often do not have enough of it. That is typically the extent of kids knowledge of money. If you want to raise financially responsible kids you must teach them the rest.
It’s best to begin educating children about financial matters when they’re young. The habits kids develop at an early age will stick with them through their teenage years and will continue to stay with them well into their adulthood. Here are several ways you can educate your kids about money and raise financially responsible children.
Giving an allowance is important because it is the first income your kids will have. If they learn how to manage their money at an early age they hopefully won’t be stuck in debt when they get older. When young kids have money for the first time they can learn what denominations each of the coins and bills are, they can learn how to count what they have and they can learn about storing their money in a safe place.
There are two ways of dishing out allowances. You can pay them a certain amount every week or you can make performance-based payments. If you pay your kids “per action” it teaches them the value of a dollar. It shows them that hard work will pay off financially. However kids are supposed to do things like get good grades in school or clean their rooms without expecting to be rewarded financially. Either way, giving an allowance is an important first step to teaching your kids about financial responsibility.
When you give your child an allowance like 5 bucks a week they may get excited to have money and spend it all the next day. Then a few weeks later they’re asking you to buy them a new bike, an iPod or a video game. This is an important time to teach your kid about the importance of saving their money.
Kids can get their allowance and immediately separate it into spending money and saving money. Since kids don’t have bills to pay saving half of every allowance payment is a good idea.
You can encourage saving, or even require it, but creating an incentive for them to save is even better. If your kids are saving a lot of their allowance give them a few extra bucks as a bonus. This “interest” payment will make them want to save even more of their money in the future.
Lead By Example
Kids will learn more by your actions rather than your words. This statement holds true for finances too. Perhaps the best way to teach kids about financial responsibility is to be responsible with money yourself. So create a budget for your family, keep an emergency savings account and don’t get into credit card debt. When you do spend money, don’t spend more than you can afford, use coupons and comparison shop.