For the first time in many years, millions of parents are finding themselves saying - No. We want our children to have all the things we didn't; I know I feel that way. It scares me to think that today's children may be the first in many years to have less than their parents.
It is important to teach our children at a young age the concept of money, and in today's economy it is crucial. Children will have a greater respect for money and be able to make smarter choices if parents start teaching them financial responsibility as early as possible.
I feel that we have a generation of children, especially teens, that have gotten use to getting everything they want. Now with so many families struggling to make ends meet - doing everything they can to not lose their homes or to just put food on the table - it is vital we teach our children the importance of a budget and how to save.
Believe it or not you can teach children as early as age two the concept of money. Children see their parents spending money, writing checks and using their debit/credit cards; whether or not they totally grasp the idea of money that can understand that there is an exchange of money for goods.
These tips will help you to teach your children to be responsible with money. Who knows, you may even learn a few things yourself.
First you need to teach your children the concept of money.
They need to recognize and learn the value of coins and paper money. If you don't have a piggy bank, use a jar. Just don't spend money on one (be creative - any container with a lid will do). This first tip is for young children. If you already have tweens and teens you can skip to tip two. Some ideas for teaching money concepts are:
- Differentiate between the coins - Show them how the coins are different in color and size. One concept that is difficult for young children to grasp is that the dime, although smallest, is worth more than the penny and nickel. You need to do this on a regular basis until they get it.
- Pretend - Play store. If you have a toy cash register use it... if not just pretend. Let them go shopping for toys they already have and pay for them. At the bottom of this post is a link to a site where you can print and then cut out play money.
- Use real life - Take advantage of opportunities to teach them about money. When you go to the grocery store or shopping explain to them that you have to pay for the things you are buying. Let them hand the cashier the money. This works especially well if they are buying something for themselves using their allowance or money they earned.
The second tip is to lead by example.
Should you be open and honest with your children about how much you make? A few years ago I would have said no. However, I think it is important that your children understand how much you earn and bring in to the household versus how much is going out. Of course, you can't tell your four or five year old how much your salary is and the amount the mortgage you pay monthly... unless you want it announced to the world. I think by the age of seven or eight kids can be told the truth about the family's finances. Start by explaining what the word "debt" is and if you have debts let them know.
You need to be a good role model when it comes to money. If you want your children to be financially smart - YOU have to be financially smart. If your kids see you budget and act responsible with money it will help them to do the same.
If they don't know the financial situation they assume that money is a bottomless pit from which money will always be there. I remember my mom asking me "do you think money grows on trees?" This made me pause for a minute... hmmm, did it grow on trees?! This was my introduction into money - where it came from and at that time in our lives... how little there was of it.
So be as open and honest as you can about finances. Don't scare your children or stress them out but teach them the value of money. Teach them that you work hard for your money and that you should act responsibly with that money. Teach them by example the importance of saving for your future (or a rainy day), giving to charities and spending sensibly. This leads me to the next tip:
The third tip is let them be responsible for their own money.
When they receive money as a gift for birthdays and holidays is a great time to teach them to be responsible with their money. And If you do have the money and want to give your child/children an allowance for doing things above and beyond what they should/have to do as far as chores go this is a good way of teaching them work ethics. Remember, their allowance is an equivalent to a salary. So they only get their allowance/salary once a week if they earned it. Think of it this way, an allowance should be given to promote healthy money management.
Maybe they can negotiate pay raises once or twice a year. On the other hand, you can also exercise your right to make pay cuts if they aren't doing a good job. Now here are three things to teach them to do with the money they receive, either as gift or an allowance:
1. Savings - teach the importance of putting money back for the future. This is paying yourself first. As adults we should pay ourselves first by saving for retirement or to have money put back for when something unexpected comes up. We can tell kids that maybe they can save for a bicycle, a car or most importantly for college. With the economy as shaky as it is right now, parents may not be able to pay for their children's college education (or at least not in its entirety). This way kids can help by saving for it too.
2. Charity - giving a percentage of their money gift or allowance will help teach your child the importance of giving. Teach them to give without wanting to receive anything in return. They will learn satisfaction in helping others and learning to put off their own needs in favor of someone else. Now as for how much they should give is up to your child (with guidance from you). Some schools of thought is 10% of your income or allowance in this case. However modest their donations, getting into the giving habit is a sound financial management principal for your child.
For younger children they can save up their money in a special jar dedicated for this purpose. Label the jar “My contribution money” or something else to reinforce the idea that the money in the jar is for a special purpose. When the money reaches a certain amount (say, $10 or $25 dollars) the money can be sent to the charity your child has selected. Since younger children are more hands on, maybe they can physically give the money to a local charity. Older children can save the money in a jar as well or in a separate bank account for this purpose and write a check to the charity of their choice.
3. Spending sensibly - Of course your child should be able to spend money they've received as a gift or allowance on things they want. But here is a great opportunity to teach your children how to be smart consumers... and to be frugal. Sometimes they (and we as parents) think they have to have something right now. This is understandable since all the commercials and ads tell us we need it NOW! Show them that buying responsibly has its own rewards when they time their purchases wisely.
What money they have left each week after they put an allotted amount in savings and for charities they should be able to have "mad money". This is your child's fun money. It is to be spent on a weekly basis for immediate gratification stuff like candy, small trinkets, or whatever they want!
As I said though, you can take this opportunity to teach them to bargain shop. To find the best deals on what they want. They can learn how to get more for their buck and how to stretch a dollar; invaluable money lessons that will stay with them and be a big payoff throughout their lives.
I'm optimistic that the state of today's economy will not last forever. My hope is that my son will have a healthy and wealthy future. Even if things turn around in the financial world these lessons will still be invaluable. After all, most self-made millionaires/billionaires are smart with their money. So teach your children today how to be tomorrow's billionaire.
Check out MoneyInstructor.com where you can print out money and coins to teach your young children about money. They have free printable worksheets and teaching lessons.
Just remember, it is never too late to start teaching good financial responsibilities to our children; but don't delay... get started today!