There are many ways to teach your children good money sense. You can fall back on stories of how you used to earn, save and spend money all those years ago. You can fill their heads with lessons on how important it is to be careful and wise with their money. However, the bottom line is that experience is the best teacher. The key is to have your children learn by doing.
Here are some ways you can encourage your children to save and manage money. In addition to the short-term benefit, having children who realize that money does not grow on trees, you will be instilling in them financial responsibility they can carry with them through adulthood.
- Get them interested in money early
When your children are very young (perhaps age three or four), show them how to tell different coins apart. Then give them a piggy bank they can use to store up their change. A piggy bank (or even a wallet or a purse) is a tangible place to keep their money safe.
- Make saving a habit
To get children off on the right foot, consider making a house rule that they must save 10% or more of their income, whether the source of that income is earnings from a neighborhood lemonade stand, their weekly allowance or a part-time job.
- Open a savings account in their name
Like a piggy bank, a bank savings account can show kids how their money can accumulate. It can also introduce them to the concept of how money can make money on its own through compound interest. Start by giving your children a compound interest table, (available for the asking at most banks,) to let them anticipate how their money may grow.
- Encourage goal setting
Have your kids write down their want lists, along with a deadline for obtaining the items on the lists. For example, your child may want in-line skates by the end of the summer or a mountain bike by next year. Visualizing may give kids the added motivation they need to save.
- Give regular allowances
Allowances give kids experience with real-life money matters, letting them practice how to save regularly, plan their spending and be self-reliant. Of course, you should determine the amount of allowance you think fits their age and scope of responsibilities.
- Help plan a budget
Encourage your children to write down what they buy during the week and how much each item costs. Then write down their weekly incomes. If the two amounts do not match up, they will have to prioritize their needs and wants.
- Encourage money-earning ventures
To help your children earn money beyond their weekly allowances, suggest that they find creative ways to make money. Encourage them to do special household chores or to seek jobs in the neighborhood such as raking, mowing, pet sitting or shoveling snow.
- Show them the effects of inflation
To show your children how prices have risen over the years, take them to the library to look up ads for movie tickets, bikes and sneakers in the newspaper archives. (Try finding the year they were born.) Or go on the Internet. The US Bureau of Labor Statistics (www.bls.gov) publishes statistics tracking such everyday purchases as bananas and gasoline. This information can provide both a financial awakening and a history lesson for your children.
- Most important, give them a head start
The money habits your children learn — and witness from Mom and Dad — could certainly carry over into adulthood. While you may be proud of the 12-year-old who saves enough to buy a $400 bike, you might be even prouder of the 22-yearold who can move into her first apartment without having to ask mom and dad for a loan, or the 32-year-old who can draw on his savings and investments to put a 30% down payment on his first home.