Children often take money for granted. If no one teaches them good money habits from a young age, they will end up with poor money management skills and very likely live in debt when they are older.
So it's up to their parents to teach them about money. Here are some ideas that parents can use for raising money-smart kids.
Give Kids Pocket Money
Give young kids a fixed amount of pocket money each week, fortnight or month to spend as they wish. There are no hard and fast rules when it comes to the amount of pocket money given. Some parents like to give a small amount and then occasionally buy the kids a nice treat, while other parents give a bigger amount and make it clear to their kids that that’s all they are getting.
This approach works very well on younger kids as it gives them a basic understanding on what money can or cannot buy. But as they grow older, they’ll need more sophisticated approaches to help them learn how to save and spend wisely.
Pay Kids Interest
This is assuming the kids have some money in hand – either from the parents’ pocket money or money given as gift by family and friends. This works pretty much like a bank account. The child hands Mum a certain amount at the end of each month and Mum will pay him interest, say 10% of the amount saved.
Keep all “transactions” on paper. A small notebook will do. Show the child how the calculations are made. When kids can see that their money is growing, they will be more interested in saving more. This approach also teaches kids that money can be moved around without using cash.
Offer Kids Match-funding Options
Picture this. An older child wants to buy something desperately but that item costs far more than what he’s saved or earned. His parents would like to help but don’t want him to think they’ll fork out the rest of the money for nothing. A good solution is to offer the child a match-funding option. That means the parents offer to pay for half of what the item costs and the child will have to earn the other half to buy that item. It’s a fair deal and encourages kids to work hard for something big that they really want.
Opening Bank Accounts for Kids
It’s always a good idea to open savings accounts for children, since many banks pay high interest rates for children’s savings accounts. Take them to the bank to make deposits or withdrawals and help them to check their balances via online banking. Get them a debit card too. Let them learn to save, earn interest and monitor their spending. Their real-life banking experiences will come in handy when they are older and eligible to apply for credit cards.
There are many ways to teach children about money. Parents can raise money-smart kids by giving kids pocket money, paying them interest, offering them match-funding options and opening bank accounts for them. The experiences they gain with saving money, spending money, making money and earning interest will go a long way in teaching them money management skills.
Those who find this article useful may also like to read Choosing Savings Accounts for Children, Ten Money-making Ideas for Kids and Money Management for Kids.
References:
Jay, Roni. The 10 Most Important Things you Can Do for your Children. London: Pearson Education Limited, 2008.
Bates, Dianne. Money Smart Kids. Australia: Ibis Publishing, 2005.
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