Kids should learn about money matters from an early age. Here are several tips to get you started.
A solid financial education is critical for children today. Poor financial habits can lead to debt, low self-esteem and strained relationships. No parent wants this for their child. Yet very few of us take an active role in teaching our kids sound money management practices – and they are not learning it anywhere else. What can you do to help your youngster establish good money habits? Here are some ideas:
- Start early. If you build up concepts slowly, children can start learning about money as early as age five or six, when they are naturally curious and eager to please their parents.
- Give your child money so they can practice using it wisely. Allowances are a great, tangible way for kids to learn about money management. As Michael Sear, author of Kids and Money, says, “The instance a child is forced to start making purchasing choices based on comparative costs, a smarter shopper is born.”
- Provide structure. With your child, set up rules about how money will be allocated. Perhaps half will go into savings and the other half can be spent at the child’s discretion. Another possibility is to have one-third go for everyday purchases (afterschool snacks), another third saving for big items (a bicycle or car, for example), and the last third into long-term savings (college) or investments.
- Don’t try to control everything. Kids will make mistakes with their money – we all do. But it is better that they be allowed the freedom to err now, when the stakes are low. Misspending will quickly decrease when your child realizes she has no money left this week.
- Don’t cave in. If your child gets a certain amount of money to spend as he likes, he needs to understand that is all the money he is getting that week. Giving an advance does not teach fiscal responsibility. If your kid must have extra money, let him work to earn it.
- Discuss family finances. This may seem like a big taboo, but it shouldn’t be. Being exposed to adult money matters will make your youngster more savvy in the long run – and perhaps more appreciative right now.
- Open a bank account in your child’s name. Do not settle for a piggy bank unless you have to. It’s important that children be exposed to the power of compound interest, and the idea that money can earn money.
- When your youngster is old enough, encourage her to invest in the stock market (or at least track her favorite stock to see how it performs). You can open an account at Sharebuilder.com, which has no minimum investment and charges only $4 per transaction, or you can buy DRIPs.
- Teach your child to be a smart consumer. Analyze how advertising images try to persuade people to buy what they don’t need. Explore how credit cards work and what a smart way to use them is. Discuss the importance of having a healthy credit rating.
- Educate yourself. Even CPAs and Financial Planners are always learning more about money matters – the rest of us could certainly do the same. The more control you have over your personal finances, the easier your family life will be. And you’ll be setting a great example.
- Make it fun. Yes, money is a serious matter, but if all your child gets are long lectures and tedious advice, they’re going to quickly develop a poor attitude towards financial matters.
The copyright of the article Money Lessons for Kids in Kids & Money is owned by Estela Kennen. Permission to republish Money Lessons for Kids in print or online must be granted by the author in writing.
