The following tips provide useful insight for parents as they work to raise children who practice sound money management:
Be an example.
Children develop their financial attitudes and behaviors by what they see their parents do and not by what they’re told. Actively encourage good values. Teach your children responsibility and the value of work. Teach them to save towards a goal of a new bike or video game; let them know that even you have things you want and cannot have.
Define boundaries.
Even parents who are able to buy their children everything need to be careful of overindulgence. By fulfilling every whim, you may deny your child of several things: appreciating things that cannot be bought; being motivated to work hard; persevering through obstacles and frustration; and achieving a hard-won goal.
Teach them to be charitable.
Help your children experience the good feelings of sharing their income with others. Encourage your children to regularly contribute a portion of their income to a charity or help them buy treats for the family. “Adopt” a family through your church, synagogue, or community during the holidays or give your children the responsibility of buying or making birthday gifts for friends. Also, teach your kids to contribute in ways other than giving money by giving time, energy, and skills to help someone else.
Opportunities for extra chores.
Give your children the chance to earn extra cash by doing jobs beyond their expected chores. Award jobs to the lowest bidder as part of a “Saturday Job Auction.”
Money jars.
Help children divide their allowance or earnings into four jars—charity (10%), quick cash (30%), medium-term goals (30%), and long-term goals (30%).
Paying bills.
Have your high-school age children pay the family bills for one month (with the parents’ money, of course). Use play money to recreate bill paying for younger kids. Help them see what you have, what you need to pay, and what will be left over for your discretionary spending.
Budgets and spending plans.
Help teenagers who are earning money create and follow a budget. This is especially important before they leave for college, where they will have significant financial responsibility. Emphasize the freedom that comes when they plan their spending and saving.
Planning for vacations.
Help children plan a family vacation. Involve them in the decision-making process for all aspects of the trip, such as food, travel, hotel, souvenirs, activities, etc.
Understanding compound interest.
Teach your children the benefits and penalties of compounding interest. Teach them they can earn interest by matching their savings 25 cents on the dollar or help them open a savings account or mutual fund. Teach them the drawbacks of paying interest when they borrow or purchase on credit.
Savings and checking accounts and credit cards.
When your kids are mature enough, help them open a checking and savings account and teach them how to balance a checkbook. If your teenager is financially mature enough to apply for a credit card, find one that allows you to set the spending limit and receive a monthly statement of your child’s purchases. Review the monthly statements with your child and teach the importance of paying the balance each month.
Investments.
Help children learn about the ups and downs of the stock market early in life. Then they will most likely be more comfortable with investing when they are adults. Give gifts of stock in companies your children are familiar with to encourage them to follow the stock market.
Tax returns.
Taxes are a significant expense that few children consider. Have your child sign his or her tax return. If your child is employed, look at his or her pay-stub together and discuss how taxes work and why they are necessary.
“Teach kids to manage money, so they don’t become debt-ridden adults.”
— Oprah Winfrey
“We teach children to save their money. As an attempt to counteract thoughtless and selfish expenditure, that has value. But… to teach a child to invest and use is better than to teach him to save.”
— Henry Ford