Introducing money management skills to young people creates a generation of responsible spenders.
If your child has ever thrown a temper tantrum at the store when you refused to buy a candy bar, this guide is for you. By age seven, kids are already eager consumers and are becoming more interested in how much candy bars, games, movies and toys cost, but their idea of money management is begging you for it. Giving your child money whenever he or she asks creates poor money managers and impulse spenders, but introducing money management skills at a young age creates responsible spenders. Follow these tips to raise money-smart kids.
Grant an Allowance
Giving kids some of their own money is the best way to teach the value of it. How much you give as a weekly allowance will depend on the going rate in your area and your financial circumstances. If you can, start with an amount that is half your child's age. For example, an eight-year-old would receive $4 per week, a six-year-old gets $3 per week.
It may be tempting to make the allowance contingent on the completion of household chores, but you should teach your kids that regular chores, such as feeding the dog or emptying the dishwasher, are expectations for all family members. If you want your child to earn his or her allowance, give it for something special, like washing the car or raking the leaves.
Create a Budget
Help your child set goals for his or her allowance. If your tween wants tickets to the next Justin Bieber concert, whip out the calculator and go through savings scenarios together. Let your child choose his or her approach to encourage independence. It is fine to take an advisory role, but an allowance should give your child a measure of freedom. Telling your child exactly what to do with his or her allowance will not help teach responsible money management skills.
You can set some limits, like not accepting the “it's my money” line if your child wants to buy something against your beliefs or household rules. For example, you can say “no” for buying a puppy or an unlimited amount of soda and candy.
Be a Model
Children are wonderful observers, and they pay attention to how you handle money-related issues. Your child will learn when you make impulse purchases, comparison shop or discuss the family budget. If you want your kids to save, you need to do it too.
Explain Cashless Transactions
Many financial transactions take place today without cash. You pay your bills online or through a check, and groceries are purchased with the swipe of a card. Explain the connection between a credit card and real dollars, and show your child relevant parts of your monthly statement so the process is less vague.