Raising Money-Savvy Kids

Teaching Children About Financial Responsibility Starts at Home

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teaching kids mbThe issue of teaching children financial responsibility has become so important that a few states are now requiring students at public schools to take a personal finance class before they graduate.  

These classes are designed as an adjunct to – not a replacement for – sensible money management habits learned at home. And while the curriculum typically covers a number of important financial topics, such as budgeting, credit cards, loans, etc., it doesn’t cover personal family values and lifestyles. It is really up to us as parents to see that our children learn to be smart about money.

So how and when do you start?

The sooner you start, the better. Most experts agree that children as young as three can grasp concepts such as spending and saving. As they get older, you can add a third category: giving. But the most important lessons are the ones you teach by how you handle money and how you talk about it.

I always try to be open with my children about money. When I was looking for ways to help them learn to manage money – and, yes, at times how to mismanage it – I discovered three simple yet critical things:

 1.  You need to make it real. You can’t expect a five year-old to understand about saving for college! But a child can learn to save for a baseball glove. As they grow, the lessons and goals will change. But the basic principles will remain the same and that will form the foundation for their money management skills for the rest of their lives.

2.  You need to help them set rules. One of the hardest distinctions to learn is the difference between wants and needs. Advertising and peers will have an influence on a child’s sense of what’s important and what’s not. By setting rules as to certain items they cannot spend their money on or how cash at birthdays will be handled, you’ll be helping them make smarter decisions about how to budget and prioritize.

3.  You need to make it fun. One suggestion is to use glass jars or clear plastic containers to sort the money for spending, saving and giving. This way they can see the money growing and see it going out when it’s spent. You can also have the kids put pictures on the containers of what they are saving for or what cause they want to give money to.

I also found that as I helped my kids learn about money management, I learned some things about myself, too.

I learned that I needed to be more aware of how I spent money; particularly any impulse buys at the supermarket (which are so easy to do) or an electronics store (I love tech gadgets). It was a perfect opportunity to talk about needs vs. wants and just because you can afford to buy something doesn’t mean you should buy it.

I also learned that I had to step back and let them make mistakes. I had to let them make bad decisions in order to learn how to make better ones. Of course, there were rules and limits as I pointed out earlier. But still there were times when money I thought they were wasting turned out to be the best use of that money. When something else came up that they wanted, the money wasn’t there because of the earlier purchase. And the light bulb would go on.

Helping your children become smart money managers is one of the greatest gifts you can give them. It is also an important part of the legacy that you leave them.  You may also want to record the process and lessons to share with your children when they are older and have children of their own.

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