Teaching Kids about Money Management

Sally grasped the shiny quarter with small fingers and grinned widely. “Daddy, I am rich!” she squealed, as she ran to her little green piggy bank to deposit the coin and then began dancing as four year old children do.

Mr. Smith smiled while he thought of how he could teach Sally about money in these impressionable years.

He came up with the following ten ideas for teaching money management to his precocious daughter:

1. Give Examples and explanations.
Young children are like little monkeys, imitating what they see. Parents should explain why they make certain monetary decisions, like how they choose which products to buy for the family, or why selecting a more expensive item might be worth the price if the quality is high. Furthermore, the parent should make an effort to set aside a portion of the household income for charity and savings, and then explain to the child these decisions.

2. Provide for a little practice.
Children need to have a bit of their own money to practice all of the skills that they have learned from you. Starting when a child is four to six years old, you should give them a regular allowance, money that is not dependent on any other behavior or work issue. Make sure the child is regularly given the determined amount with at least some change included, so he can put a portion into savings, charity and walking around money.

3. Let extra work mean extra money.
After the child has finished her regular chores, give her an opportunity to earn additional money (over her allowance) by completing age appropriate tasks, such as mowing the lawn, raking leaves, etc. You do not have to pay the market rate for such projects, especially since your child is eating your food! Even with the reduced wage, a child will be glad to have the chance to earn extra money (and will experience how much hard work it takes to earn a dollar).

4. Be thankful.
Having your child set aside ten percent or so of his earnings to give to your church or a local charity is an excellent way to teach him the concept of freely giving to others as we are given abundance to share. Your son will experience that it is indeed more blessed to give than receive.

5. Save for a shiny bicycle.
Children always have a large toy or gadget that they want badly. When you encourage them to work extra chores for extra quarters (or dollars!) and save much of their allowance for weeks or months, you encourage delaying gratification for future rewards. The importance of this skill cannot be overemphasized, and once your child has learned it he will be nearly set for life.

6. Meet the bankers.
When your child is old enough, you can help her save the money she has earned by opening a child’s savings account at your bank. This is an excellent opportunity to begin teaching her about one of the most powerful force in the world: compound interest.

7. Learn about priorities.
When your son asks about money, explain to him patiently your knowledge. Let him know that managing money is important, though having a lot of money is not necessarily so. It is always a good idea to let children know that when they become adults, they will have to make many, many decisions. Choosing correctly does not necessarily mean always selecting the alternative that brings the most money or costs the least..

8. Have fun.
Every child needs to have fun, and money can have a vital role in our leisure actives. During the next Disney Vacation or once-in-a-lifetime European holiday, sit down with your daughter before your family leaves, and explain the travel budget (surely a large one) and how it is a valuable use of money to spend on your family so everyone can relax and have some fun.

9. Understand debt.
When your child is at the right maturity, talk to him about your mortgage, and demonstrate how student loans helped you become a Pharmacist, Engineer, etc. He can then learn good lessons about managing debt, when it is wise to become indebted, and how to avoid the many temptations and pitfalls of irresponsible borrowing.

10. Do not worry.
Be consistent and calm when dealing in family money matters. A child who sees his parents constantly fighting about money may develop unhealthy attitudes. Your youngster might become a spendthrift, miser or avoider of all money issues (to his detriment) if you do not set a good example. Money is related to power, and when we treat it with respect, but keep it in its place our children can learn the right lesson.