By Mindy
BillSavings.com Brief: Most kids know how to spend money, but they don’t know how to save or organize money. Money management skills aren’t usually taught in schools. This means it’s up to you to pass this critical life skill on to your kids. Take the time to show your kids how to handle money so they’ll be able to make wise financial choices for the rest of their lives.
The “three R’s” – reading, writing, and arithmetic – have always been front and center when it comes to educating young people. Personal finance, however, doesn’t rank as high in importance. It’s a shame too. One recent study showed only 12% of high school students in the U.S. ever receive any formal instruction in personal finance. Luckily, you can put a dent in this statistic by taking the time to teach your own kids about money.
Young people are big spenders
Though schools teach kids the values assigned to different coins and bills, money management is not commonly taught. This means when kids graduate from high school, they are poorly equipped to make sound financial decisions.
Students who go on to college have to juggle bills and loans that range in the thousands of dollars. Students who take jobs after high school begin earning and spending significant wages. Most students end up having to learn about money management the hard way. In other words, they don’t realize they’re making mistakes until they’re short on cash and deep in debt.
Ironically, young people are big spenders – even before they get out of high school. One study found that teenagers, as a group, spend over $124 billion dollars in a year. If your child is out spending money without a solid grasp on personal finance, you’ll want to pay attention to the following suggestions. These are ways you can instill respect for money management while still letting your kids be kids. Below, you’ll find eight ways to teach money management
Tips for teaching kids money management
- Give your kids an allowance. The best way to learn about using money is to actually have money. For kids too young to go out and get a job, an allowance is usually the only way to get regular money. It’s up to you to decide whether you want the allowance to be “earned” with weekly chores or whether you will give your child money at regular intervals. The amount is also negotiable – just take care not to make it so small that your child can’t use the money for any purchases or savings. The bottom line is simply that your child should regularly receive a set amount of money.
- Define expectations for your child’s allowance. Don’t worry – you shouldn’t simply give your child an allowance and then sit back to see what happens. Instead, after you’ve agreed on the amount and the frequency of the allowance, talk to your kids about your expectations for money use. Clarify what kinds of purchases are acceptable with allowance money. Then explain that you expect a portion of the money to be saved.
- Open a savings account for your child. If you expect your child to save responsibly, you have to give him or her tools to do so. You don’t want your child to begin hoarding money in a secret hiding place. This will teach bad habits early on. Instead, take your child to your bank or credit union and open up a savings account in your child’s name. If you can, try to keep the account solely in your child’s name so he or she feels more responsible for it (if your child is to young to be a sole account holder, list your name as the joint holder but explain that you will have your name removed from the account just as soon as your child comes of age).
- Help your kids set up a budget. Show your children how to track their expenses so they know where their money is going. Start by helping your kids pinpoint where their money already goes. Then have your kids list the items they’d like to save up and buy. Have them also write down realistic goals. Putting spending habits and savings goals in writing is an excellent way to teach kids how to be aware of their finances.
- Show your kids how to shop around. Teach your kids the importance of comparing prices between stores that sell the same items. Show them how to locate sales and good deals in advertisements and the newspaper. Point out coupons and in-store specials. Help them understand that taking the time to find the best deal can mean significant savings.
- Include kids in family spending decisions. When you make big spending decisions, ask your kids for input. This could include anything from shopping for new furniture to buying a house. Teach them to recognize price variation based on different features. For instance, say you’re shopping for a new refrigerator. You want one with an ice maker, but that ups the price by a few hundred dollars. Show your kids how to weigh wants and needs against costs.
- Demonstrate the consequences of late payments and missed payments. Sit down with your kids early on in their financial education and talk about fees and finance charges. This is especially important if you plan to get your child a credit card so he or she can start building a credit history. Explain how fees and finance charges work. Show your child examples of how charges accrue when payments are late or missed. Have your child explain the concept back to you, just to make sure he or she really grasps it.
- Be a good example. Create and stick to your own budget, and share that budget with your children. Set savings goals and show your kids your account balance when those savings goals are reached. Pay your bills on time and keep your financial documents organized. Let your own actions demonstrate to your kids that financial planning is doable and rewarding.
Above all, make the time to talk about money
Instilling a healthy respect for money in your children is a priceless lesson. Helping your kids learn money management skills at an early age will equip them to make wise financial decisions throughout their lives. Take the time early on to show them the importance of good financial habits. Though it may mean an investment of your own time (and money, for that matter), it will be one of the most valuable life skills you can pass along to your kids.
8/26/2008
