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Teaching Your Kids About Money

 

Nothing is scarier for a parent than to send their child off into the world to navigate life’s ups and downs. This is especially true when it comes to finances. Kids are targeted by mass marketers pushing a single message – buy everything and anything you want now. Plus, money is much more abstract than it used to be. People use credit cards, debit cards, and the Internet to make purchases. This could make it very confusing for children to learn that these are being used as a tool instead of cash, but the money needs to come from somewhere. In addition, what financial habits are they learning from you? If you struggle financially, use this as an opportunity to learn as you teach.  Behaviors form early, so the younger you start the better. But no matter your child’s age, it’s never too late to start the lessons.

 

Pre-school

Young children develop their habits early so start laying the foundation for a strong financial future in pre-school. Let your child play store and buy their “purchases” with coins. Or, when you go to the store, let your child pay the clerk, in cash, for the purchase. This will help them learn the value of money in exchange for needs and wants. Introduce the concept of saving. Use a clear jar so they can see their progress. Have them set a goal to save for something small, like a box of crayons. Tape a picture to the jar to remind them what they are saving for and give them a few coins a day to put into their bank until they reach their goal. When they can count to five you can start teaching them about the equivalency of money – four quarters equal one dollar. Don’t be too concerned if they don’t get it right away, you are just introducing the concept at this time.

Elementary School

Once children enter school they have a general understanding that things cost money and sometimes there isn’t enough money for everything they want. Continue to encourage them to set goals and write them down. Open a savings account, and let them go to the bank and make their own deposits.  When the statement comes, review it together and talk about how their money is earning interest. This is also a good time to introduce “The Three Banks” system – a savings container with slots for saving, spending and giving. 

This is also the age where children should start getting an allowance. This will teach them that there is only a limited amount of money for the things they want and sometimes they have to save to get it. A good method to decide how much to give is to determine what you expect them to pay for – candy, toys, games, etc.. You may also decide that they could earn more for doing “extras” around the house. Give it to them weekly. Lastly, don’t bail them out.  If they don’t have enough to make a purchase, make them wait. If you go to the store and they forget their wallet, make them wait. These are life lessons that might prevent costlier mistakes in the future.

Teens

Continue building on the concepts you have taught earlier. Review your child’s allowance to see if it covers what you expect them to pay – clothing, entertainment, cosmetics, etc. Lengthen the time between their “pay periods” – say once every two weeks. This will allow them to pace themselves in their spending.  Introduce the concept of credit. Many kids don’t understand that you still have to pay, with interest, for the stuff that you purchase with your credit card. Encourage their entrepreneurial skills to allow them to earn extra income. The adventure of starting a small business is a great financial lesson for kids. They learn how to set and achieve goals, understand profit and loss and get rewarded for hard work. Make sure you, as the parent, are there to support them, but allow them the opportunity to experience the good and the bad of their financial decisions. 

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