In our world of instant gratification and easy access to credit, it has become more and more difficult to impart the value of money to our children. Unfortunately, the days of working hard at chores to earn a few dollars of allowance and saving up for a coveted toy or book are gone for most American children. There are still plenty of ways, however, to teach our children how to be wise with their money. Here are five tips to help you.

Model Good Financial Behavior

As most parents know, our kids are watching us all the time and learning from our behaviors.  If they see us making good financial decisions, they will mimic the same behavior. When you decide to buy something, talk about it with your kids. Tell them how you determined it was a good use of your money and how you calculated whether you could afford it or not. Talk them through the process if you decide NOT to buy something as well.

Teach Them About Money at Every Age 

There are plenty of ways to teach kids about money at every age of development. Here are a few ideas:

  • Young children can be taught the difference in coins.  A see-through piggy bank will help them see how their money is growing. You can also play games like Monopoly with them to show them how money is used to buy larger items.
  • Older children can learn about bank accounts, starting with savings accounts. Open an account for them and show them how their balance grows as they deposit birthday money or allowance.
  • Teach teenagers about checking accounts and credit cards, including:
    • Tracking deposits, checks, and withdrawals
    • Balancing the checking account each month
    • Understanding that using a credit card is the same as a loan

Get Your Children Involved in the Family Finances

Keeping the financial aspects of your family a secret from your kids is never a good idea. When you get them involved, you create an open environment where they can ask questions and learn valuable information. Here are some ways to do so:

  • Take them with you to the grocery store and talk about the cost of various items and why you purchase one item instead of another.
  • Have the kids help you prepare a budget for the next family vacation.  When you go on the vacation, have them keep track of how much you are spending and how it compares to the budget.  Encourage them to think of ways to save on some items (such as drinks in a restaurant) so there is more money to spend on activities.
  • If your child has a cell phone, consider having them pay the extra cost if they go over the amount of data allocated to them.

Encourage Delayed Gratification

Your kids need to see that not getting everything they want when they want it can lead to bigger and better things. Here are some ways to show them why delayed gratification is a good thing:

  • If your child asks for a toy when you are shopping, suggest they add it to their Christmas or birthday wish list.  Or, suggest they save their money to purchase it.
  • If the family is planning a more expensive vacation, such as a trip to Disney, encourage your kids to be involved in saving and planning for the trip.
  • Have a vacation jar for everyone’s extra change.
  • Brainstorm ways to earn extra money for the vacation.
  • Help your kids search for savings opportunities for the vacation.
  • Make sure they see you modeling the same behavior of delayed gratification.  For instance, if you are saving for a different car, talk to the kids about it.

Let Your Kids Manage Their Own Money
The perfect time to let kids make mistakes with their money is when they are young and the consequences are not as dramatic. Here are some ways to start teaching them how to manage money:

  • Instead of just giving your children a weekly allowance, consider tying the amount of the payment to their chores.  Of course, there are some chores that should be done simply because they are part of the family.  There are other jobs, however, that could be completed for pay such as mowing the lawn, cleaning out the garage, or deep cleaning a bathroom.
  • Help your child develop a budget for the money they are receiving.
    • Saving
    • Spending
    • Gifts to charity, family, or friends
    • Fun activities
  • For older children and teenagers:
    • Have them create a budget for items you normally purchase for them such as clothing, school supplies, school activities, and school meals.
    • Then give them the money each week or month that you would normally spend for those items and allow them to spend the money.
      • Be prepared that they may run out of the money the first few rounds but it will be a great learning tool.
      • Resist the urge to give them more money when they have spent too much on one item or another.  Being out of money and having to wait until the next “payday” is a great lesson.

Raising money-savvy kids is vitally important for their futures. No matter how old your children are, you can always impart some financial education that can deepen their understanding of money. Start with modeling the behavior and ending with allowing them to learn from their own mistakes.

Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.

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