Teaching Kids About Finances

Parents face a lot of challenges these days. From first days of school, to first crushes, to when they turn 16 and get their driver's license -- we deal with it all, eventually. But, there are some things that need to be dealt with sooner rather than later. One lesson that kids need to learn while they are still young is how to manage money. Financial responsibility is a skill that will stay with your child for the rest of their life. I'm dealing with the same issue right now with my daughters, and here I'll share some of the things I've done, and offer insight into raising a financially disciplined child.

• Teach your child the difference between a "need" and a "want". Often, a youngster can't really distinguish between the two, especially if they are used to getting pretty much whatever they want. Here's what I did. I explained to my kids that things like rent, electricity, and car insurance were "needs", meaning we couldn't really get along without them. Things like the newest video game system, or a new cell phone (my 8-year-old wants a cell phone...it's NOT going to happen!) are "wants"....sure, they would be nice to have, but we can get by without them. If your child has a clear idea of the difference between "need" and "want", they will be more likely to spend their money on something that's more important to them, instead of wasting it.
  
  
• Encourage your kids to save a little, each time they earn some money. With my girls, I give them an allowance of a dollar a week, for every year of their age. I also made a rule that they have to save half, and spend half. Think about adding interest to what your children save up. That will show them that sometimes saving is better than spending right away, because they will have more money to spend in the long run. Older kids can figure for themselves how much extra they are earning by getting interest on their savings. This would also be a good time to teach kids the good and bad things about borrowing.
  
  
• Set limits on their spending. Don't allow them to just "blow" their money on anything they want. For example, if you're like me, and you have a child that runs outside with money in hand every time they hear the ice cream truck...you have to teach them that sometimes you can't have whatever you want, whenever you want it, and that they can get a lot more down the road if they just show some financial restraint. Kids model what they see, so set a great example by being financially sensible yourself. Just because that plasma TV is on sale, doesn't mean that you should run out and buy it!
  
  
• Take your kids, as soon as they are old enough, to your local bank or credit union and help them open their very own savings account. My grandparents did that for me when I turned ten. They started me out with a hundred dollars, and by the time I turned 18 I had almost five thousand dollars! That money came in really handy when it came time for me to strike out on my own.
  
  
• Here's something that helped me save money: When I wanted to buy something with part of my savings, (for example, I paid to go to summer camp when I was 13), my parents didn't really object. Being able to reward yourself occasionally is part of what makes saving worthwhile.
  
  
• You may also consider savings bonds, because they can be bought for half of the face value, and if your child uses the interest earned from the bond to help pay for college, it may be tax-deductible. Bonds also can't be spent right away, which will teach your child a lesson in delayed gratification.
  
  
• Let your kids make their own spending decisions (within reason of course). Whether they make a good choice, or a not-so-good one, they will learn from it. Teach them to weigh the pros and cons, and to do some research and compare different options before they make that purchase. If you use credit cards, take that chance to teach them how credit works. They should know how to protect themselves against credit card fraud, how to calculate a bill or a tip, and how to make sure they aren't getting overcharged.
  
  
• Treat your kids' school attendance as if it is a full time job (which in my opinion, it is). Many grown-ups get performance bonuses in their jobs, so why not do the same thing for the kids? Reward good grades, and reward them for improvement as well. That will motivate them to keep doing well in school. When they get old enough, encourage them to get a part-time job so that they can learn about taxes and Social Security withholding. (Plus, if your kids are anything like mine, they value their money more if they are the ones who have earned it).
  
  
• Nurture an entrepreneurial spirit within your child. Many kids earn their own money by walking their neighbor's dog, raking leaves, shoveling snow in the winter, or something similar. Or, if your kids are like mine and have way too much stuff, help them have a yard sale. They'll be de-cluttering their bedrooms, and earning (and hopefully saving) money, too!
  
  
• Level with them in an age appropriate manner. Kids can pick up on things from a very young age. They know when Mom and Dad are stressed out, and when they are old enough, you can start explaining when and if money gets tight around the house.
  
  In my opinion, kids detect lies, cover-ups and half-truths far more often than most parents realize, and this can lead to a child having problems with honesty later in life.
  
  
• Also, explain to your kids that they shouldn't just blindly buy into what they hear on TV and see on the internet. The American Academy of Pediatrics estimates that an American child sees over 40,000 commercials each year. That is a lot for a child to process. Explain to your kids that it may look great on TV or online, but just because "so and so" has a fancy car or all the latest gadgets, doesn't mean that they should live beyond their means.
  

I've used a lot of these tips within my own family, and I can honestly say that I think my advice is beginning to take root. Just the other day, I asked my daughter if she wanted to spend her allowance at Wal-Mart, in the toy aisle, and she said, "No...I'm saving up to buy a new bike". I was shocked, but I was really proud, too. If you employ some or all of the tactics I've written about here, I'm willing to bet that your child will soon surprise you with a nugget of financial wisdom as well.

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