Wednesday, March 24, 2010

Teaching Kids About Money

Simple fact: Kids who are taught about money grow up to be adults who manage their money well. But for those of us who feel intimidated by the subject and don't really know where or how to start, take heart. Start with these steps and get your kids on the road to financial freedom. They won't realize the importance of this now but they will thank you later.

Start with allowance
Kids respond to concrete examples so decide on a weekly amount and begin the process of understanding how the world of finance works: take them to the bank and open a savings account. Let them use their money for all discretionary spending, thereby teaching them about the concept of saving for large purchases. They want something but don't have the cash? They can't afford to buy it. That is a valuable lesson, start the teaching early!

Read more ideas on starting and maintaining an allowance for kids.

Risk vs. reward
Introduce the idea of working for things that you want with extra chores. A house cannot run efficiently unless everyone does their part, and there's usually no money changing hands for that. However, you may choose to assign a dollar value to additional household chores outside of their normal responsibilities and let kids work for the money. Also, talk to them about not just things they want now, but planning for the future (college tuition, vacations, etc).

Balancing a budget
Talk to your kids about what a budget represents: freedom to be in charge of yourself and your life. Start to teach them that part of every person's life is work (which they will now understand because they have chores) and what "living within your means" means. Draw up a budget and see what they can afford and consider using your family budget as an illustration: you don't have to go over every purchase with them, just give them the broad sense of what your monthly budget looks like.

Giving back
Teach social responsibility early by including charity in your conversation you're your kids about money. Help them find a worthy cause and start donating to it! Consider volunteering for the organization if they have that opportunity for kids and make it something they will embrace for their entire lives because when you give to charity, you are really giving to yourself.

You might also want to read about how to make saving fun for your child. Armed with the right information, you can teach your children their financial ABCs.

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