As a parent, one of your many tasks is to teach your children how to be smart with money. It’s important to help them understand the basics of spending and saving, and as they grow up and mature, how credit works.
Growing up with a strong financial foundation will make the transition to college and independent adulthood much easier for your child. Here are some strategies for teaching your children about finances.
1. Open a savings account.
Take your child to the bank and open a savings account in their name. Add a small amount of money to get them started.
Whenever your child receives gift money, let them keep a small portion of it for fun money, but require them to put a portion of it in this savings account.
Encourage them to create goals, whether it be to save a certain amount of money or to save enough for a certain item. Show him or her their balance periodically so they can learn to enjoy watching it grow and understand the benefits of long-term gratification.
2. Give an allowance.
Handing your children a weekly or monthly allowance is a helpful way to teach them about money.
Rather than giving them money whenever they ask for it, which reinforces that you serve as an ATM for them, pay them on a schedule. This teaches them to ration out the money and save instead of spending every dime they have.
One strategy is to give them an allowance that consists of money designated for spending, saving and charity to show them the different ways money can work.
For example, for a kid in early elementary school, you may want to give them $2 per week to put in savings, $2 per week for spending and $1 for charity. This shows them not all money is for spending right away.
“Handing your children an allowance is a
helpful way to teach them about money.”
3. Share a debit or credit card.
When your child is in high school and seems mature enough for this responsibility, you may want to add them to your debit or credit card account. However, you need to have strict rules in place.
For example, it is only to be used for gas, or they can use it for fun an entertainment but only $20 per week.
Remind them that you can check the balance online at any time, so you will always be able to see the purchases they make. You may even want to show them how to check the balance so they can learn to be accountable.
If you do give them a credit card, make sure to explain that it’s not free money, but more like a loan you borrow and repay.
4. Suggest a job.
Working helps kids and teenagers gain responsibility and enjoy the sense of pride we all get from earning money.
Whether it’s babysitting other neighborhood kids, walking dogs or working in a local business, having a job will help your child become more responsible and see what it’s like to receive an income.
Some parents allow their children to use their earnings however they would like, whereas others require their children to save a portion of it or even share with the family.
Photo source: Mint