During my time spent in school in the 60’s and 70’s, I was never taught about money and how it works and I’m pretty sure that financial education isn’t being taught in school now. It’s never too early to start teaching your children about money. Why not empower your kids to avoid the money traps that so many have encountered. This is one pitfall I believe the kids should love to learn and value. The younger the better in my book. Young children can understand the concept of money as long as us parents come down to their (eye) level and put the conversation in terms such as piggy banks, allowances and the exchange of money for items they value.
Does your child want a big ticket item? Do they get an allowance? Talk with them about saving a percentage of their allowance for so many weeks or months in order to obtain that item. You could sweeten the pot by matching what they save! Ask them why they want that item. After saving for weeks, ask again. They may no longer have interest in that particular item.
We all need boundaries and kids especially do. Teach financial discipline. Kids need to learn that they can’t have everything they want when they want it. They could do what Dave Ramsey teaches and have envelopes for each of their expenditures – add and subtract envelopes as times and needs change. Have one for toys, giving, gifts for others, etc.
Were your parents good money role models? Were they good at saving and cutting corners in order to save and pay cash for their bigger ticket items? Having the kids see you as responsible with your money will speak volumes.
Involve your kids in the family budget. If they’re a bit older, show them and talk with them about the monthly bills. Explain to them the portion you’re saving or tithing. Explain to them about the bills that don’t change monthly.
Time to go shopping? Talk with the kids about a list and sticking to the budget. Get them involved with preparing that list. When at the store, take some time to go over pricing, brand names vs. store brands, sales and comparing for the best bang for your buck.
Do your kids get an allowance? Some parents believe that an allowance is the best way for children to learn about money, it’s value, what it can do/bring. If they do receive an allowance, make sure that a percentage of that allowance is being saved for bigger purchases down the road. What about giving? When talking about sharing and/or tithing, share with the kids what you do in that regard and suggest to them something similar. Teaching by example is best. Encourage your children to participate in your tithing and/or community or charitable activitites. You could have them choose a cause or organization and match their monetary charitable contributions to their cause.
This would also be a good time to talk about giving in general such as at Christmas time, giving to more underpriviledged children toys and other items no longer of interest to them. It may not be a good time to talk about tax deductions if they’re too youg, however, it could be referenced very simply.
It’s not a bad idea to reward extra for hard work or work done without having to ask/tell or work done especially well. This is a great way to teach good work ethic. You could pay a base allowance and reward extra for this “good work.”
Along these same lines, occasionally you may want to increase their allowance. Chances are they’ll ask you first. This would be a good time to talk about additional financial responsibility on their part. This may be a good time for them to pick up some or all of the school supply expenditures. Or, to buy some or all of their own clothes. What about gas or car insurance?
At a younger age, it’s appropriate to have your children open up savings accounts. When children meet their savings goals, consider matching or adding to their accounts. For instance, for every $10 they save, you reward them with $1. Then comes the teenage years when a checking account now becomes appropriate and necessary. Ths account account should eventually be funded with either (and) their allowance or paychecks through an after-school or summer job.
Sooner or later you should introduce your children to credit cards and the importance of building up credit. This will vary depdneing on when you feel it appropriate and in a way that aligns with your own beliefs. You might consider starting with a secured credit card referred to a “credit card with training wheels,” by requiring a cash collateral deposit that becomes the credit line for that account.
Children need to learn about good and bad interest. Good interest being accumulated via an insurance product, savings bond or CD. And bad interest accumulating when credit card bills are not paid on time or in full. Show them your financial and credit card statements and help them to understand both the good and the bad.
Ideally, you would have purchased a little life insurance policy when the kids were young as that’s when they’re most affordable and can accumulate very nicely over the long haul. You might want to start a money market fund or even check out the stock market games available on the internet. Teaching investment basics can be very empowering!
I’m a proponent of safe money principles. If you’d like to learn more about how you can protect yourself, your family, your money and increase your wealth, please reach out to your financial planner with these questions… OR,, ask me!
(2014) D.C. Brown