How to Teach Your Child Money Management
How important is it to you that your child has a healthy attitude towards money? Knows how to manage his income and savings? Grows up and retires in financial security?
I'm willing to bet that you'd do anything to see your kid happy (now and forever).
Now, I'm not a professional anything. I'm just a person whose parents did a great job of teaching her about money and wants to share some of that knowledge with other people. I mean, how many 19-year-olds do you know that have a long-term investment portfolio, high-yield money market account, and several CDs (disclaimer: I am far from wealthy, but the little money I have is very well managed)?
Just follow these few tips to get started on teaching your child the right way to deal with the complications of finances. The earlier you start, the easier it will be to establish healthy wealth habits!
Here's the way my parents did it, and it's the way I'll do it for my kids.
Each week on Sunday morning, my siblings and I would get our age in dollars (that is, at 12 years old, I would get 12 dollars). This then got broken up into three different places:
- 10% to church (until we were old enough to choose our own charity)
- 20% to savings, which were not allowed to touch
- 70% for our own spending
The "tithe" (10% to church) was almost always immediately put into a small donation envelope, which we would then put into the plate at church (remember how this used to happen on Sunday?), but as we got older and chose specific charities to donate to, we had a jar to save the money until it was a larger sum and then sent it all at once.
The savings money was put into another jar, and quarterly we would deposit that to our individual savings accounts. We were unofficially not allowed to use that money until we turned 18 years old.
The spending we could use on anything from candy to Pokemon cards to a portable CD player. It was up to us.
"Extra" Income for Kids
Grandma sends a $40 check to your daughter on Christmas and her birthday. Her uncle passes her a $10 on her way out the door after several visits a year. What should you teach your kids to do with this money?
It depends on the situation. "Regular" income such as the checks from relatives on holidays or birthdays should probably be treated in the same way as allowance because it is received in a lump sum and is predictable.
For the occasional $5 or $10 that is tossed your kid's way, though, I would probably let him do what he wants. Who knows? He may even want to donate some of it to a charity or throw it in his "savings" jar (unless that new DVD is about to come out that he's had his eye on, of course!).
The key to this allowance system, though, was that it was all the money we got.
But Mom, I want this new video game!
Then save up for it.
But it just came out, and I want to have it before the rest of my friends!
Well now you realize that next time you'll need to plan ahead and save up.
Can I just borrow $50 and not get allowance for the next few weeks?
Nope. But you already have $13 saved up, so it won't be long before you can buy the game anyway.
Seriously; you have to stick with the plan. Even though your kid might be mad at you for a little while about the game, he will eventually appreciate that you stuck by your guns.
Without even realizing it, you have just taught your child the worth in buying with debit instead of credit. He's learning that it's better to save up for big purchases than to buy them with someone else's money and then pay back. Right now, at an early age, he will just have to "take your word for it" that he cannot always buy on credit, and as he gets older and asks more questions, you can further explain the pros and cons of each.
Structured rules like this provide an excellent outlet for talking to your kids about money. They will not inherently understand the rules that come with buying, saving, and donating to charity. Your children need you to teach them these things! And what way to better encourage the proper ways to use their income than to lead by firm guidance?
For Kids With Jobs
There are always the kids who have a job. This is a good thing for you to encourage your child to do if you can't readily afford their allowance, but it also is a good idea for a kid who has expensive tastes (video gaming on multiple consoles, et cetera).
I would highly encourage you to make your kids divide their job income as they would their allowance.
Where to Draw the Line
So within this plan, what should my child not have to pay for?
Necessities. Food, clothing, shelter, school supplies (the big bags of candy at the Staples checkout probably don't count in this category, though). But keep in mind that designer clothing is not a necessity (no matter how much your daughter may insist that it is). It is one thing for you to buy your kids some "nice" clothing for special occasions. But if your daughter wants that special sweater or pair of jeans, have her save up for it (offer to pay her for babysitting or other extra chores if you like). She will appreciate it that much more.
You, as the parent, should also pay for anything they may need for positive extra-curricular activities. Think of it this way: if your child loves playing tennis, buying him some white shoes and a tennis racquet now might result in him earning a scholarship to college later! And if not, he'll reap great benefits from playing a sport and learning how to maintain his health... but that's a whole other hub right there!
You can write a "hub" like this and make money from the advertisements! Just join the HubPages community (it only takes a few seconds), and start writing about whatever moves you. It's that simple!
Of course, as your child gets older (say, high school age) you can explain more in depth the options that come with savings and spending. As I said, having your child research some charities with which she might personally empathize is a great way to get her involved in where her money goes.
Have a conversation with your teen about what he has learned from the 10/20/70 plan you outlined for him at a young age. Remind him what he has learned about the value of a dollar through having to save up for his big buys. Ask him what he has learned about credit and borrowing money.
Enforcing such simple rules throughout your child's development will do wonders for the way he views and deals with money when he leaves the nest!
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