Teaching your kids about how to handle money responsibly is one of the most important jobs you have as a parent.
Good money management is about simply about forming habits – The earlier you form habits, the more it feels like second nature.Those habits will stay with your child for a lifetime. Here are six key points to keep in mind, plus age-appropriate tips excerpted in part from MSN
Don’t feel like you have to be a financial whiz yourself, or even that you have to have a good handle on your own money situation. Pick up a good book, ask your bank or credit union about their youth programs, take a family finance class at your local library or community center. There are even money camps.
The allowance debate
Allowances are probably the hot-button topic when it comes to financial literacy for kids. Nearly everyone agrees that kids need to get spending money from their parents-after all, you need to have money to learn about money.
The issue generally comes down to expectations. Many parents have their kids do certain chores to earn the allowance, arguing that this system teaches children about earning. Others say that allowance shouldn’t be tied to chores, because taking care of a home is simply part of being a family. It’s up to you to weigh the pros and cons and decide what’s right for your family. Read about allowance dos and don’ts too.
Divide it up
Many experts suggest that kids have a system for allocating money, whether it’s from allowance, job income or cash gifts, generally along the lines of 70 per cent for spending, 10 for saving, 10 for charity and 10 for investing. You can vary the proportions however you want, perhaps dividing “saving” into long-term and short-term goals, or “spending” into self and gifts.
Let them make mistakes
While it can be tempting to swoop in and save the day, let your child make mistakes with her money. (Better to be disappointed with a junky $20 toy than a junky $20 000 car.) “My son Devon saved up and bought a remote control boat, which broke after half a day,” says Lori Mackey of Agora Hills, CA, who founded Prosperity4Kids, a company which develops financial educational products. “We talked it out. He said, ‘I wasted my money,’ so I asked him what he thought he could have done differently, and what he’ll do next time. I think making small mistakes when you’re young helps you later on.”
Look for teachable moments
Have your child save receipts so he can see where his money is going (and return a defective remote control boat!). Sit down and go through his monthly bank statement with him. Look at interest earned on investments like government savings bonds. These are great opportunities to talk about budgets, interest, bank fees and disposable income.
Also here are some age-by-age tips to start your kids on the path to financial happiness:
Under age 4
Practice counting with actual currency (steering clear of coins with really small kids).
Age 5 to 8
Take your child to your bank or credit union to open a savings account and learn about saving and interest.
Work on the concepts of choice and elimination. In a store, say, “You have this amount. Decide what you are going to buy and tell me why you chose it.”
Ages 9 to 12
Have your child use part of his allowance to buy small gifts for family members, especially around birthdays or holidays. It could be as simple as getting enough candy to share at the store. This helps your child learn how to share, as well as budget. Invite your child to sit with you occasionally when you pay the household bills, so she can get an idea of costs and how to use a checkbook or online banking system. Show your child how to read a stock or bond report. (Don’t know how? Learn together!)
Ages 13 and up
If your child has a handle on using cash responsibly, get a debit card with a low limit.
Plan how to save for long-term, big-ticket goals, like a car or higher education.
If your teen is working, show her how to file an income tax return and have a general discussion about the tax system
So…what do you think?
I have to admit that most of my knowledge is theoretical. My kids are still young so I hope to gain some words of wisdom from the experienced out there….
Any of the above tips that you tried but didn’t work out for you?
Any other tips that you taught your kids? Please share in the comments…