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Here’s our go-to guide for teaching your children the important life
concepts of money and financial responsibility.
Changing lives is our mission at InCharge, and the lives of people like Kristi is what our mission is
Changing lives is our mission at InCharge, and the lives of people like Kristi is what our mission is
Changing lives is our mission at InCharge, and the lives of people like Kristi is what our mission is
Discussing the topic of responsible money management openly, even at the family dinner table, can help children understand the “whys” and “hows” of budgeting, saving and investing with real-life examples.
– says Peter Blatt of Blatt Financial Group.
Most parents understand the importance of teaching kids about money and finance, but many don’t know how to do so or where to start. To help, here’s our go-to guide for teaching your children the important life concepts of money and financial responsibility…
One of the first lessons children will learn when it comes to money is that money really isn’t free. Teaching children that money is something that is earned through work, creativity and ingenuity is an important part of their financial education.
Kara Harmon, of Moneta Group, recommends that children can take on simple tasks and chores starting at an early age. Many families create odd jobs so children can earn a small amount of money. Other chores must be completed in order to EARN an allowance. An allowance presents an opportunity to make an important connection–“I must work in order to get money to buy the things I want or need. If I do not complete my job list, I do not get paid”, says Kara.
This is the beginning of a lifelong lesson we (as adults) call a “work ethic”. When a child earns their money, they will appreciate it more and be smarter when spending it.
“Basics of money management must be taught with visible, countable cash. Establish an allowance system which encourages saving and thoughtful spending. Suggest saving and spending in different areas including charity, ‘quick cash,’ short-term savings, and long-term savings.”
Mike Zisa, author of The Early Investor: How Teens & Young Adults Can Become Wealthy also suggests paying your children’s allowance once per month. Explaining that
they have to budget the money for the month will help teach the idea that planning ahead for expenses is an essential part of financial literacy.
Perhaps the single most important financial lesson you can teach a child is the concept of budgeting and responsible spending. Here are some great tips for doing so…
John Bohnsack, of Briaud Financial Advisors, recommends having your children actually pay the tab (with your money of course).
When children see that you get a bill and actually have to pay for the things you enjoy, they are able to connect with the concept that nothing is free and that everything has a cost.
Syble Solomon, of MoneyHabitudes.com, also recommends including your children when it’s time to pay the bills.
Any chance I get I have my daughter pay for groceries, ice cream, or clothing with my card. She gets that there is a cost to all of the items. Plus, the interaction with cashiers only builds her confidence”, says John.
– says Kara Harmon, a Certified Financial Planner with Moneta Group.
Kara also wants parents and caretakers to be aware that it is important to encourage compulsive savers to occasionally enjoy the fruits of their work by spending some of their earnings on things they want or want to do.
“Although we are usually concerned about big spenders, compulsive savers can become challenging spouses and business partners”, Kara states.
We all know, as adults, that there are always unexpected circumstances or events that we simply can’t plan for. In order to be prepared for things like a job loss, loss of income, emergency repairs etc., it’s vital to have money stashed away for a rainy day. Savings and emergency funds are crucial aspects of teaching financial literacy to children.
To communicate the importance of saving money, provide real life examples to your children as they happen to you and your family. If a major home repair is needed, explain the unplanned expense and how you were able to use savings to cover the unexpected cost. Also do your best to illustrate the problems you could face if proper savings weren’t in place.
Barbara O’Neill mentions on FoxBusiness.com that a good rule of thumb is to keep (at minimum) a three-month reserve for savings. “People’s eyes glaze over when I tell them this, but it’s imperative,” advises O’Neill. Learn to cut corners, live on less and shop in cheaper places.”
Mike Zisa suggests that you show children how their money will exponentially grow over time through the power of compounding using an online calculator like this one to demonstrate.
Mike also provides an interesting concept for replicating the workings of 401k investment plans. Mike recommends that, if possible, you “match” your child’s investment (therefore incentivizing saving) at a rate of 50% for each dollar your child “invests” or saves.
Presenting them with a ‘pay stub’ each week reflecting their ‘gross’ and deductions for ‘principal and interest’ will help them understand how things work in the real world. They should see that their lack of savings resulted in them paying more for something that could have been paid for without having to pay extra for interest.”
Forbes: The 5 Most Important Money Lessons to Teach Your Kids
TheMint.org: Fun financial literacy activities for kids
Warren Buffett: How to Teach Your Kids About Money
Parents.com: An Age-by-Age Guide to Teaching Kids About Money
Bankrate.com: Resources for Teaching Kids About Money
