For most parents, teaching their kids about money is a very touchy subject dealing with so many aspects – - – how soon should they be taught, how much should they be taught and what’s the best way to teach them among many other concerns. With the value of a dollar seem to have gone out the window for many families, due mostly in part to poor teaching habits, it is important to take control of this new generation of spenders by breaking the patterns set forth to the current generation and teach children what they really should know. Parents, who are supposed to be models, should use financial challenges as opportunities to teach kids basic lessons about money. It is critical, however, that parents not place the emotional burden of financial problems on their children, who are not developmentally able to handle it.
But where do parents begin? It is a scary venture, but well worth the effort. The answer: Begin by setting an example. If your spending habits are less than great, make every effort to change this reality. Remember, your children are watching what you are doing, and learning from both your successes and your mistakes. Setting up a budget, being disciplined and following your own rules is a good start. If your child sees you splurging carelessly on temporary joys of material things, they will assume it is acceptable and think nothing of adopting such habits.
Being honest and realistic when communicating to your children about money within the family, and developing good habits like budgeting, realistic spending and living within the family’s means is very important. If parents feel uncomfortable discussing money themselves, or do not have their own spending habits under control, it will be difficult to teach children healthy money habits. With good communication and effort, parents can improve their own financial outlook while modeling good money habits for their kids. One way to be teach children money lessons through role modeling is to talk openly about the process of budgeting the family’s money, or even include children on money decisions. If children see their parents spending carefully, saving regularly, and setting aside money for charity, they are likely to follow suit themselves.
Help children learn the differences between needs, wants, and wishes. This will prepare them for making good spending decisions in the future. Setting goals is fundamental to learning the value of money and saving. Young or old, people rarely reach goals they haven’t set. Nearly every toy or other item children ask their parents to buy them can become the object of a goal-setting session. Such goal-setting helps children learn to become responsible for themselves. Introduce children to the value of saving versus spending. It means explaining and demonstrating the concept of earning interest income on savings. Consider paying interest on money children save at home; though this is easier to introduce to older children. Children can then help calculate the interest and see how fast money accumulates through the power of compound interest.
Use regular shopping trips as opportunities to teach children the value of money. Going to the grocery store is often a child’s first spending experience. About a third of our take-home pay is spent on grocery and household items. Spending smarter at the grocery store (using coupons, shopping sales, comparing unit prices) can save more than $1,800 a year for a family of four. To help young people understand this lesson, demonstrate how to plan economical meals, avoid waste, and use leftovers efficiently. When you take children to other kinds of stores, explain how to plan purchases in advance and make unit-price comparisons. Show them how to check for value, quality, repairability, warranty, and other consumer concerns. Spending money can be fun and very productive when spending is well-planned. Unplanned spending, as a rule, usually results in 20-30 percent of our money being wasted because we obtain poor value with our purchases.
Expose them to reality. Instead of keeping them away from ads, show children how to evaluate TV, radio, and print ads for products. Will a product really perform and do what the commercials say? Is a price offered truly a sale price? Are alternative products available that will do a better job, perhaps for less cost, or offer better value? Remind them that if something sounds too good to be true, it usually is.
Give them an opportunity to earn their own money. Parents give their kids an allowance in exchange for doing simple tasks around the house. If your children do not have their own money, they cannot learn how to handle it. Their money can come from many resources: an allowance given by their parents periodically, gifts given by relatives or earnings from odd jobs. Teaching them how to handle it can begin as early as their first comprehension of what a dollar is and how it is spent. You can give your child a leg up during this learning process by allowing them to decide how they want to spend and save their money, rather than giving into whatever they want or always paying for their extra’s. When giving children allowance, give them the money in denominations that encourage saving. If the amount is $5, give them 5-1-dollar bills and encourage that at least one dollar be set aside in savings. That is a good way to for them to start making decisions on where to allocate their dollar.
Encourage older kids to get a job. An allowance doesn’t have to be the only way for your kids to earn money. Your child’s initial exposure to the work-for-pay world can start with something as simple as a lemonade stand. Depending on age, he or she might do yard work for neighbors or offer babysitting services. Teen-agers can get a part-time job if he wants money for this DVD or cool gadget he’s so dying to have. Encourage them to do garage sale, sell stuff on Ebay or do some online jobs.
Allow young people to make spending decisions. Whether good or poor, they will learn from their spending choices. You can then initiate an open discussion of spending pros and cons before more spending takes place. Encourage them to use common sense when buying.
If you are dealing with older children and teenagers, rather than young spenders, you will need to take a different approach. The discussion of credit cards and larger purchases will come into play. Try to keep your children away from credit cards for as long as possible. Credit cards have a message: “spend!” Some students report using the cards for cash advances and also to meet everyday needs, instead of for emergencies.
Alert children to the dangers of borrowing and paying interest. If you charge interest on small loans you make to them, they will learn quickly how expensive it is to rent someone else’s money for a specified period of time. For instance, paying for a $499 TV over 18 months at $31.85 a month at 18.8 percent interest means the buyer really pays about $575.
If you struggle to manage your financial life, you may need to consult a financial professional. In order to send the right messages to your children and, therefore, influence the way they behave in their own financial lives, you have to make sure your own finances are in order. We’re all living in a world of poor spenders (almost, that is). If you do not cultivate a positive attitude about finances in your household, your child may become one of the many paycheck-to-paycheck people who think they can avoid expenses by leaving bills unopened. If you see signs of this behavior in your own financial life, you may already understand how hard it is to overcome this subliminal programming. Don’t put your child through the same experience.
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The answer: Begin by setting an calcul RCA example. If your spending habits are less than great, make every effort to change this reality.