Being financially responsible isn’t reserved for adults, as some people might think. Children can – and should – be taught how to manage their finances properly at the earliest time possible. By doing so, you will be giving your kids a valuable education that will help them develop personal responsibility, discipline, and give them a huge leap forward into becoming money-savvy.
The problem here is that parents are often hesitant to teach their kids about becoming money savvy because they themselves are not that confident about their own financial skills. But you don’t have to be an accountant to teach your children the importance of savings, investments, and managing a budget. Starting with the broad concepts of personal finance is a good start, like setting a personal budget, earning money, spending money, and savings.
Setting a budget
Teach your kids the importance and how-to of creating a weekly budget. A regular allowance will be useful for this step. Try to stick to a regular schedule for giving them their allowances, so they will learn to be familiar with the idea of when they get their money and how much. Ask them to list all their sources of money (allowances, chores, etc.) and also all the things they will be spending money on. It would also be helpful if they have separate containers or “banks” to put their money in for specific expenses or savings.
Earning money
It is absolutely important for your kids to understand that before you can withdraw that money from the ATM, you first have to earn it. Teach them the concept of earning an income by giving them extra money when they do chores or other jobs around the house. However, it is not recommended to withhold their allowances until they do chores, because that will limit the opportunities for developing their budgeting skills.
Let them spend their own money
You will need to practice a bit of “tough love” on your kids from time to time, especially when it comes to money. After they have created a budget and have some kind of income rolling in, you need to let them make their own decisions about where their money should go. Give some guidance and recommendations, but in the end, let them make mistakes. After all, it’s better that they make mistakes now when you’re still there to help them rather than when they’re on their own and have to deal with tougher, life-changing consequences because they made a bad financial decision.
Savings and short-term goals
Children easily learn the abstract idea of saving money by putting some coins into their piggy banks, but it’s up to you as the parent to take it further. It’s a great idea to start teaching your kids about setting goals for using the money they have saved. It doesn’t have to be an annual event; even short-term goals like saving up for a much-desired toy to buy next month will work. Setting short-term goals with rewards will definitely help them see the value of setting their money aside for a future pay-off.
