10 Great Tips for Teaching Kids Money Management
One of the most important skills that parents can pass on to their children is a solid understanding of money management. Unfortunately, it can also be one of the more difficult skills to teach, especially if parents themselves have a hard time managing their finances. Here are 10 tricks to help kids understand the value of a dollar and the best way to keep track of their income and spending habits.
- Provide an Allowance – In order to start learning about the best ways to control how much they spend versus their income, kids need to actually get paid a bit of money. Whether you provide an allowance as a reward for good behavior or as compensation for chores, it’s a good idea to give them the chance to earn an allowance.
- Create Opportunities to Earn Bonus Money – In addition to a weekly allowance, providing the opportunity to earn extra cash or “bonuses” for extra chores done or milestones accomplished is a great way to inspire kids to go above and beyond what’s expected of them.
- Bill Them – Creating a small billing system, such as paying a portion of their cell phone bills, is one of the best ways to help kids understand the concept of billing and expenses. While it’s certainly not necessary or even advised to bill them for the full amount of a monthly phone bill, a nominal charge on a regular basis is the foundation of creating a budget.
- Help Them Open a Savings Account – Opening a savings account, making deposits, and watching the balance grow can instill a sense of pride in children, especially if they have a particular long-term savings goal in mind.
- Their Own Personal Checking Account – Another great way to help kids understand the basic ideas of budgeting and controlled spending is to help them open a checking account and to balance the account on a regular basis. Though paper checks are rapidly going the way of the dinosaur, using a debit card wisely and maintaining a positive balance are things that kids should learn as early as possible.
- Create Savings Goals – Kids that save carefully to earn enough money to buy something that they want are more likely to understand the value of these expensive items more than those who are simply gifted with them on birthdays or holidays. Helping your child learn to save their money in order to make a relatively extravagant purchase lays the groundwork for future habits, which will prove valuable later in life.
- Play “Store” With Little Ones – For children that are too young to understand the value of money or have the means to earn it, it’s important not to underestimate the power of play. Commerce-based pretend games like “Grocery Store” help small children begin to grasp the concept of paying for goods and services.
- Set a Good Example – Living within your means and keeping outstanding debt as minimal as possible is not only good financial practice, it also helps you set a strong example for your children.
- Learn to Say No – Though it can be difficult to deny your children non-essential things that they ask for, it’s important to put your foot down when they request things you simply can’t afford. Explaining to them that such large purchases are simply not in your budget, while temporarily disappointing, is one of the most powerful ways of leading by example.
- Be Open and Honest – In a troubling economic climate it can be very difficult to set a good financial example. More and more families are finding themselves in dire financial straits, making it almost impossible to teach by acting as a role model. If your family has been affected by the recession and weak job market, it might be a good idea to swallow your pride and explain to your children, in an age-appropriate way, what your situation is.
Helping your children learn to budget and spend wisely might seem like overly-strict parenting from time to time, but it’s a lesson that they will carry with them into adulthood and will shape their spending habits for the rest of their lives. As modern American families find themselves sinking into a spiral of debt, it’s become more apparent than ever that kids need to learn these skills as early as possible so that they are able to form good spending habits.