Do you realize your child’s first experience with money will impact their financial behavior for life?
That’s HUGE – no wonder there‘s a lot of debate regarding how to teach children about money.
Money isn’t everything, but it can make life easier – an important concept to teach.
While I don’t favor paying children to complete routine household chores (some things we just have to do as a family member, and money shouldn’t drive our motivation in this area), I do favor gradually introducing children to money – similar to how we gradually introduce them to driving a car.
Here are five tips to help your child learn about money.
1- Money as a gift
When they receive money as a gift, teach them to save a portion, donate a portion, and spend a portion.
This behavior will help them understand how money can be used.
It will also help them learn how to spend within limits while saving for the future.
2- Planning family vacations
Involve them when planning family vacations. Let them see how you budget and save for these memorable trips.
Start with small tasks, and as your child grows, expand their role.
Once you’ve selected a destination, ask them to calculate how much you need to save for travel, food, lodging, and entertainment.
When you’re on vacation, ask them to keep track of spending.
Being part of the process, children will learn to focus on saving instead of always asking you to spend.
3- Essential expenses
Help them become aware of regular monthly expenses – your essential expenses.
Start with one item and gradually expand the list of regular monthly expenses.
Consider beginning with your grocery expense. Let your child track how much you spend at the grocery store.
You can also have them look for online coupons to reduce your grocery bill.
Maybe reward them by giving them a percentage of the savings.
During the summer, introduce them to the electric bill. Show them how using air conditioning increases the bill.
Introducing your child to regular monthly expenses will teach them that money is used to pay for essential expenses – things you need in life.
4- Holiday spending
For holiday gift spending, give them a prepaid credit card.
They will have the autonomy to spend however they want and learn how to spend within limits.
Of course, you’ll need to help them with this process initially.
Begin by having them make a list of who they want to buy gifts for and then determine how much to spend for each person.
If they overspend, do not give them more money. Instead, help them figure out which items to return and alternatives for their gift ideas.
5-Spending plan
Gradually introduce them to a spending plan, including contributing to savings and donating to charities.
Give them a certain amount to spend monthly. If they spend their monthly allotment, do not give them more money.
Allow them to make these errors now instead of making more costly errors while away at college.
Taking time to teach your child about money will help develop solid financial behaviors for their future.
Part of the learning process is for them to make some mistakes on their own.
It’s easier to manage these mistakes when they are younger and under your supervision — instead of when they are older and away from home.
(Update to original post from October 15, 2013)
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA®, RICP®, is a Managing Director at Transition Planning & Guidance, LLC. Life is more than money. It’s about living the lifestyle you want and can afford. For that reason, Niv consults with clients on money, life, and work. Her approach capitalizes on techniques she learned throughout her career, including as a management consultant, executive recruiter, and financial advisor. Her services include developing comprehensive financial plans, divorce financial reviews, and retirement plans. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me.’”