Ask any child where money comes from, and the answer you’ll probably get is “From a machine!” Even though children don’t always understand where the money comes from, they understand at a young age that they can use money to purchase things they want. Start teaching your children how to handle it wisely as soon as they show interest in it. The lessons you teach your children about money will provide a solid premise for making their own financial decisions in the future.
There are four lessons that you can teach your children about money: learning to handle an allowance, opening a bank account, setting and saving for financial goals, and becoming a smart consumer.
Lesson 1: Handling an allowance
An allowance is usually a child’s first experience with financial independence. Your child can begin developing the skills to saving and budgeting for the things they want. It’s up to you to decide how much to give your child based on your values and family budget.
*A rule used by many parents is to give a child 50 cents or 1 dollar for every year of age.*
Here are some things to keep in mind when dealing with allowances:
- Set some boundaries. Talk to your child about the types of purchases you expect, and how much of their money should go towards savings.
- Stick to a consistent schedule. Your child’s allowance should be given on the same day each week with the same amount.
- You may also consider giving an allowance “raise” to reward your child if they handle their allowance responsibly.
Lesson 2: Bank Accounts
Taking your child to open an account is an easy way to introduce the notion of saving money.
Many banks have programs that provide activities designed to help children learn financial basics. Here are some other ways you can help your child develop good savings habits:
- Help your child understand how interest compounds by showing him or her how much “free money” has been earned on deposits.
- Allow your child to take a few dollars out of the account occasionally.
- Your child may lose interest in saving if they never see money coming out of their account.
Lesson 3: Financial Goals
Children don’t always see the value of putting money away for the future. How can you get your child excited about setting and saving for financial goals? Here are a few ideas:
- Let your child set his or her own goals to give some incentive to save.
- Write down each goal, and the amount that must be saved on a regular basis to reach that goal.
- This will help your child learn the difference between short-term and long-term goals.
- Put a picture of the item your child wants to an item that can represent their goals like a piggy bank.
Your child will learn to make the connection between setting a goal and saving for it.
Finally, don’t expect a young child to set long-term goals. Young children may lose interest in goals that take longer than one or two weeks reach. Over time, your child will learn to become more disciplined in their savings.
Lesson 4: Becoming a Smart Consumer
Children are constantly tempted to spend money, but not wisely. Your child needs guidance from you to make smart purchasing decisions.
- Set aside one day every month to take your child shopping. This will encourage your child to save up for something he or she really wants rather than buying on impulse.
- Just say no. Teach your child to thoroughly consider purchases by explaining that you will not buy them something every time you go shopping.
- Show your child how to compare items based on price and quality. Take them grocery shopping and explain why you are purchasing a certain item over another.
- Let your child make mistakes. Eventually, your child will learn to make good choices even when you’re not there to give advice.