How to Teach Children About Money
It is important to teach children about money so that they learn both about the value of money and the importance of saving money as they grow up. Lessons learned early in life could help them avoid the financial problems, pitfalls of debt, and lack of savings that have afflicted many adults in our society. Consistency in these lessons is important, as is your learning to be a good financial role model.
Give Children Allowances to Teach Them about Money
Age appropriate allowances can be given to children but these allowances should be independent of any specific jobs that may receive compensation within the family. This means that children should have some money given to them because they are a functioning member of the family and do their unpaid chores willingly and well. However, should they cease to do their regular chores or stop doing them well, fines would be appropriate. Dysfunctional behavior will cost them money, just like it will, and should, in adulthood. Behavior counts. Each person is responsible for his/her behavior.
Provide Opportunities for Paid Work to Teach Them about Money
Age appropriate "paid work" should also come into play. If a child or teen wants more money than the allowance received, he or she should be given the opportunity to EARN it. This could be in the form of part-time employment for older children, or for additional jobs around the house. Remember, every child should have regular unpaid chores in the home, just like his parents have (or should have).
Help Children Save to Teach Them about Money
Children need to be encouraged to save for things they want. And they might be shown the power of compound interest to make their savings grow. Saving habits should be established when they are in elementary school and, ideally will be reinforced in the classroom and by their peers. Parents can come up with creative ways to reward good saving habits at young ages, like matching funds when the savings goal is achieved, or paying simple interest on the money saved. By the time children reach their teen years they should have savings accounts or U.S. Savings Bonds. If teens are employed outside the home, they should be persuaded to establish IRAs (Individual Retirement Accounts).
Teach Children to Be Debt Free
The best saving habits can be undermined later in life by easy access to loans or credit cards. So children, and especially teens, need to be taught the perils of debt. Their goal should always to be debt free or if getting a mortgage, to be on their way to being debt free again. Other than a house, everything they buy should be for cash, including used cars. If they don't have the money, they shouldn't buy it. They must be taught not to borrow money. If they have a goal they need to save for it. This discipline will help them avoid much grief in adulthood. They will have been taught not to be self indulgent, so they can do this.
Help Children Acquire Self-Discipline
Those of us who frequently indulge our children with money or luxury goods that we, the parents pay for, could be doing the children much harm. Instead of having the courage to do what is truly in the best interest of our children, some of us take the easy way out and use money to buy our children's cooperation, or to gain peace and quiet.
But what children truly need is to grow into self-disciplined, independent adults who realize that they are responsible for their behavior. Children who grow up to be undisciplined and self indulgent have little or no chance at happiness, and will be likely to make others unhappy, too. A careful inspection of the reality around us will reveal how valuable self-disciplined, responsible adults are to their families and to society. That's really what we want for our children, isn't it?
Hold Children Accountable
Love and approval are essential and their power shouldn't be underestimated, but holding children accountable for their behavior may be the best gift we can ever give them. The lessons about money will be important gifts, too.
Nothing harsh is encouraged here in teaching children about money. Holding children accountable for their behavior is natural and should be done in loving but firm ways to help them grow up loved, but self-disciplined.
Parents are the most important role models for children. If you need to, change how you deal with money, savings and debt to be a good example to your children. It will help you, too!