Setting Financial Tracks for your Kids
We teach children to save their money. As an attempt to counteract thoughtless and selfish expenditure, that has value. But it is not positive; it does not lead the child into the safe and useful avenues of self-expression or self-expenditure. To teach a child to invest and use is better than to teach him to save.
When and where do children learn about money issues, such as financial responsibility, savings, budgeting, debt and credit? Perhaps a little in high school, but a majority of children learn money management skills—good or bad—at home. Parents need to be proactive about teaching their children about money, or the world of marketing and advertising will teach them—incorrectly
Money management must be learned and practiced. Consider teaching the following habits in everyday home and family life to better prepare your children for “real” life. These lessons can be included in day-to-day activities and errands, and don’t need to take much time out of any schedule
Discuss with your children the difference between needs and wants. As basic as it sounds, many financial difficulties could be avoided if people understood that it is merely impossible to have everything you want, and that some things are more important than others.
· Teach your children how to prioritize. Prioritizing can help in many day-to-day decisions, beyond those dealing specifically with money.
· Help a child understand there is no such thing as a free lunch. If a child wants an item, help them earn and save money to purchase it without going into debt.
· Teach the value of working for money, whether by getting a job such as babysitting or a paper route, or by doing extra chores around the house.
· Include your children in the process of making a family monthly budget. Make a list of all your income. Then ask the children to come up with a list expenses, including rent or mortgage, food, insurance, car payments and maintenance, clothing, and so on. Rely on past bank or credit card statements to see how much you spent on these in the past. Have a child find the difference between income and expenses. This monthly activity can effectively prepare a child for building his or her own budget.
· Give all family members a personal allowance, whether tied to chores or not, to give everyone an opportunity to manage their own money, no matter how small. If your child wants to buy something not planned in the family budget, give the child the opportunity to buy it or save for it with an allowance. Remember to explain an item can be purchased with saved money, and that the money will not be available to buy anything else the child may want if the money is all spent.
· Be patient. It may take a while for children to understand that once the money is spent, they cannot have anything else, but they will eventually learn—if you don’t give into cries for more money.
· Resist the urge to rescue your children. Stick to what you have stated about wants verses needs. This may become difficult while surrounded by other shoppers, but it will teach your children plenty about money and control, which will help them avoid unnecessary debt in the future.
· Give your children advice, but allow them to make their own decisions— good or bad. Children will learn the most from personal experience, perhaps especially mistakes.
· Saving is an important habit to begin early— early in life and early in a budget. Teach your children to pay themselves first. This means the first money to come out of a paycheck or allowance goes into savings.
· Be sure there is a goal to work toward, such as saving for a trip to Disneyland, a new bike, a college education or simply a new video game. Help the child estimate how much the goal costs, and decide how much to save each month in order to reach that goal.
· Consider having children contribute to an overall family goal. Also, consider matching savings funds as an incentive.
· While grocery shopping, show your children how to comparison shop, pointing out ways to maximize your dollar, such as reading price labels for price per ounce, or using ads and coupons to plan your menu.
· Use play money while making a budget so children can visually see how much money goes to expenses.
· Give your children the opportunity to hand money to cashiers, bank tellers, parking attendants, etc.
· When writing out checks, show your children how to carry a balance in the check book register. Share your bank, credit card, and investment statements to teach how interest works. Look for opportunities to teach money matters all around you.
· Remember that children at different ages conceptualize money matters differently. Gear money lessons around what is understood by the child, giving more responsibility to older children, but never underestimating younger children’s ability to observe your habits and attitudes toward money.
· Remember that one of the best ways to teach is by example—do your best to practice what you preach.
All About Allowances
An allowance is “a fixed amount of money children receives on a regular schedule, with the understanding that they will pay for certain agreed-upon expenses.” Allowances can be one of the best ways to teach your children financial responsibility.
Here are some tips for turning an allowance into an educational tool.
· No single allowance system will work for every family.
· Studies show that children without allowances have access to just as much money, if not more, than children who do receive allowances. Allowances help you and children have more control over children’s finances—especially if it is clear that an allowance isn’t “bonus” money, but money that needs to pay for certain expenses.
· Start when kids are young, usually about age six. This is when kids start to understand that some items are worth more than others.
· Be specific about what their allowance must cover. For younger children, an allowance can cover extras, such as toys. For teenagers, that allowance can include such items as clothing and transportation.
· Talk to other parents. Find out how much they give and for what expenses, to help you figure out where to start. But you are the one to make your own decisions—go with your instincts and values.
· Resist the temptation to come to their rescue. Let kids feel the effects of the buying decisions, good or bad. If you’ll reinforce that they don’t get any more money, they’ll hopefully spend more wisely in the future. You do, of course, have the right to veto certain purchases that are unhealthy, unsafe, or in violation of your family’s principles. Spell those out in the beginning when discussing what allowances can and cannot cover.
· If giving to charity and savings are especially important to you and your family, have children set up portions of allowance for those purposes. Encourage children to save and give to charity as you would.
· Encourage kids to save a portion of their allowance to meet a goal of their own, such as big-ticket items like bicycles or iPods.
· Think twice before tying allowance to chores. It may not work for every child, and some parents would rather have chores tied to being a member of the family or household. A better idea might be to pay kids for extra-large jobs, such as washing the windows, raking leaves, etc. (Or, reward with something other than money, like going out for ice cream when the leaves are raked.)
· When it comes to paying for good grades—think again. Tell them you are proud of them, perhaps give a special treat such as a later bedtime. Paying money for grades distracts kids from the sense of accomplishment that should be their reward. But don’t turn money into a bribe.
· If your child misbehaves, discipline to fit the deed instead of docking their allowance. If they fight about TV, turn it off. If they don’t do homework, they don’t get video games. If you do dock allowances, don’t do it too often. If, however, the carelessness or misbehavior can be fixed with money, let them pay. For example, if they ruin their younger sister’s sweater, make them pay for a new one.
· Remember, if your children pay attention to you in general and want your approval, just telling them what you expect of them—and indicating that you’ll be disappointed in them if they don’t deliver—can get them to do what you want. Children will be more willing to cooperate if you are open to them when they have a complaint or problem.
· Give allowances on a regular scheduled day to simplify and lessen problems of over– or under-paying.
· If you don’t have time to develop an elaborate system—concentrate on what is most important to you. If nothing else, at least talk to your children about money when opportunities arise.