Family changes often mean financial changes too. In a world where media promotes buying whatever one wants, teaching children about the realities of money and budget challenges parents and grandparents.
As a mother of two adult children and a grandmother of six, ages ten to twenty-two, I’ve heard all the pleas for advances on allowances at least six times–eight if you add my two adult children. Children of elementary school age are ready to start learning about money and need to develop money management skills, and real life situations can be the best teaching tools. The ten tips listed below will give your children a running start toward understanding money, banking and investments.
One Note: Be sure to consider age and mathematical ability before implementing these suggestions. For example: Most five-year-olds can’t manage adding up the items purchased during a weekly trip to the grocery store.
1. Have your children assist with grocery shopping. Allow the children to run a total as you select each item. Have them notify you when the total hits your spending limit. Kids will learn to apply their math skills to every day living too. As they get older, you can teach them to select nutritious food that is also a good value.
2. Let your child determine how his or her allowance is spent. You must determine the amount and frequency appropriate for the child’s age. However, let them learn to make decisions. Use it as a means to learn to manage money, never as a reward. Likewise, don’t withhold an allowance as punishment. You might want to require older children to save a fixed amount of their earnings, but remember this is real world learning. No one tells you whether to buy a book or Twinkies.
3. If they spend their entire allowance, don’t rescue them.
4. Show them how to save money. At age seven or eight start a small savings program at home. How about one of the toy ATM machines that operates realistically, for a lesson in banking at the same time? As they approach adolescence children need to understand bank accounts too. Take the child to the bank and let them be active in their finances. Be aware that most banks no longer allow children to open accounts in their name. Parents may need to get a bit more creative, but kids need to learn these things before they start working or go away to college. One solution is to open a free account together and monitor it carefully.
5. Set a good example and involve children in the household budget. Let them see utility bills and learn to read them.
6. Teach your child to set financial goals and encourage them to develop the discipline to meet those goals. Help children save for special purchases such as stereo equipment or new bicycles. One way is for you to match the amount of money the children save (if you can). This is the parental equivalent of an employer’s savings match plan known as a 401K plan. If this seems too complex, remember that your child’s future financial management choices will be much more complicated than your choices are today.
7. Review bank statements with your child. Even a minimal amount saved will help explain the concept of how money grows by earning interest. Again, parents can function as the bank, but older children tend to take real bank statements more seriously. It’s tough to sell kids on parents’ expertise, even though somehow we manage to survive.
8. Older children may receive stocks and savings bonds for gifts to introduce them to investing. Most children like companies they recognize like McDonald’s. Follow the stocks in the newspaper to learn to read stock charts. Let them save for a single stock, savings bond or similar small investment of their own. Consider helping the high school graduate or college student open an ongoing account to encourage continued interest in savings.
9. Listen carefully to children. Hear their ideas and help them learn. If they have economic questions you can’t answer, librarians are a great resource for finding entry-level finance and economy books you can share with your child.
10. Find online games and resources that teach kids money management. There are several good ones Kid’s Money (http://www.kidsmoney.org) and H.I.P. Pocket Change (http://www.usmint.gov/kids/games) are a good place to start. The kids will never choose them over video games, but many children prefer this media over books and paper.
Author Bio: Penny Leisch lives in Austin, Texas. Her work appears in Cup of Comfort for Mothers and Sons and many other publications. Her hobbies are photography and gardening, as well as keeping up with the grandchildren.