By Mira Ma, CFP®, RFC®
You have taught your kids how to read and how to ride a bike, but have you taught them how to manage their money? If you still have children at home, save them (and yourself) some heartache by teaching them the basics of money management.
Have a Conversation
Most transactions of daily life can lead to discussions about money. When you are at the grocery store, talk with the kids about comparing prices and staying within budget. At the bank, teach them that the automated teller machine does not just give money. You can show them your credit card statement and explain to them how using the card takes money out of your pocket.
It is important that you show some examples of the value of money in real-life situations. By explaining to them how money works, they will be able to grasp the concept and have greater respect for its value.
Teach the Balance of Wants Versus Needs
An allowance program can help teach children the relationship between work and money. The program can also include bonuses or incentives for exceptional work. Aside from their allowance, you can create a budget for clothing or other items such as toys.
Make your children decide how and when they are going to spend their allowance. With limited spending power, kids will have to decide if the item they want to buy is something that is needed or something they can live without. This may help them learn to balance wants and needs at a young age when the stakes are not high. Training them on how to spend their money wisely now can have a huge impact on their financial future.
Get Them to Start Saving
To encourage your teens to save, you can offer a match program. For instance, with every dollar they put in a savings account, you can add 50 cents or whatever amount you decide. Once they have saved $1,000, consider helping them open a custodial investment account. Then teach them how to research performance and ratings online.
Another way to start saving is to put away a portion of their birthday and holiday gift money. Kids often receive cash as a present. You should teach them to save for a rainy day and not spend all the money they received. By opening a savings account, they will have limited access to their money. They will also learn how banks work and how their money grows through interest.
Let Them Learn from Their Mistakes
As you teach your children about money, you should not be discouraged if they don’t take your advice. Allow them to make mistakes at this stage of their lives. The mistakes can leave a lasting impression and make them learn how to manage their money wisely in the future.
You should also resist the temptation to bail them out when they do make mistakes. Your kids might not be able to manage their money properly at first, but what they learn through your lessons will have an impact later in life—when it matters.