It is up to us to teach our children the skills they’ll need in order to spend and save wisely as adults. A good way to start teaching children about money is to involve them in our own everyday transactions. They can learn money skills by letting them help choose the best prices at the grocery store or by putting coins in a parking meter. However, children learn best by managing their own money. Giving them an allowance, teaching them how to live within a personal budget, and helping them open a bank account are all great ways to put our children on the road toward taking financial responsibility.
Different generations have different money values. "Waste not, want not" was a common motto for people who grew up during the Depression. Those were indeed, "hard times." People had no money because there were no jobs so they couldn’t buy goods and the cycle just continued spiraling downward. By contrast, in today’s society we are urged to "buy now and pay later." Deciding which financial values you want to pass on to your child may make it easier to teach them how to manage their money.
Here are some questions you might consider: How much allowance will you give your child? What will be the limits, if any, on what they may buy? What work, if any, will you let them do outside the home? Will they be allowed to earn extra money at home? How much will you require them to save or to give to charitable causes?
The best way to lead is by example. Your child sees you make buying and saving decisions, pay bills, and discuss money issues. Along the way, they learn your approach to money. So, first of all, be sure that you are comfortable with your own relationship to finances. If you’re not, now is the time to be more aware of your behavior and attitude and, if you are not happy, make the necessary adjustments. Once you’ve identified the values that are most important to your family, you can focus on the activities that will teach these values to your child.
By the time a child enters preschool, they have probably learned that money can buy things. They’ve been to the grocery store and the mall and have seen money exchanged for food, clothes, toys, and entertainment. When your child reaches school age, they are old enough to begin understanding the value of money through such concepts as working, saving, and spending.
Talk about your working life. Your child knows by now that work and money are connected. You may want to tell him/her how you get paid for working, how you decide what to buy with your earnings, and what percentage of your salary you save. Start them on an allowance in exchange for performing small tasks. Another way your child can start learning about work and pay is by helping with family chores such as setting and clearing the table or feeding the pet in order to earn an allowance.
With children 9 to 12 years old you can discuss more complex financial ideas, such as credit cards and investments. Encourage them to express their opinions about the household budget and the way your family’s money is spent. Your child may also get real-life training in money management through extra duties at home.
A child of 10 or 12 is often eager to earn extra cash. They may need money for a school trip or to supplement their allowance. In these situations, it is a good idea to assign real tasks, not "busywork." You might have your child wax the car, wash windows, or perform another chore that isn’t one of his regular responsibilities.
Games are another way to learn about money. Playing games like Monopoly that involve buying and selling are a good way to introduce the concept of investing. You could also use Monopoly money to pretend to buy stocks or mutual funds. Let each family member "buy" $500 worth of any stock or mutual fund and track its progress over a month in the paper or online - then see who has "earned" the most.