Teach Your Kids To Handle Money

Today's kids absorb lots of messages, values and attitudes from the media and from friends. Advertisements whet their appetite for many things they don't need. What they do need is an understanding of value of money.

How do kids learn to be economically savvy? Most schools do not teach the financial facts of life; its up to parents to help kids grow into responsible and skillful money earners, savers and spenders.

To learn about money, kids first need to have some. Experts say paying a regular allowance or pocket money is the best way to teach children the meaning of money, how to use it and how to plan. Your child is ready for pocket money around age 5 or 6, when he becomes aware of the relationship between money and shopping; can differentiate coins; can add and subtract; has spending opportunities; and asks you to buy him things.

How much pocket money? What is right for your child depends on three factors: the child's level of development, what you can afford and what you expect him to pay for. Whatever the amount, kids will soon feel they need more! But, experts also say that children don't need an automatic rise every year as that will teach children no lesson on the value of money. Tell kids who are itching for a raise to document increases in the things they pay for and to list new expenses they might be willing to cover. To many parents, it seems natural to tie allowance to grades or behavior, withholding money as a punishment or handing out as a reward. But, this strategy may not always work. As far as using allowance as positive reinforcement, expressions of appreciation may be more effective.

The first step to managing money is to set some aside. Instead of having kids plunk whatever unspent money they have left over into a piggy bank or bank account, parents should help them decide what to save first, then see what is left over for spending. For children, saving will be more meaningful if they have a personal goal- something they value. Encourage young kids to set short-term goals-toys, balloons, stickers or something else they can get in a week if they save. Then move to bigger goals that might take two weeks to save for; later, a month.

Inevitably, every now and then your child will be tempted to blow her savings on something other than her goal. The important lesson for kids to learn is that they are responsible.

For older kids, you may want to pay matching grants to encourage savings. You must be willing to let your children make mistakes. What you really need to teach your child is not what to do with his life, his talents or his money; but how to make choices, so he can make good decisions outside your supervision.

By enabling your kids to experience handling their own money, you will give them a measurable advantage in their future financial and material success.