Money management is just one of those things that is, unfortunately, more often than not learned the hard way. Most of us have made some serious financial mistakes at one time or another in our adulthood and it seems like even one mistake can be monumental to try to fix! It is such an unforgiving industry! Yet, money management is still one of life’s lessons that is not taught in schools. So how can we raise financially smart children when we were never taught financial wisdom in the first place? How to pass on wisdom that we don’t yet have?
Here are a few great ways to teach money management to children of all ages:
Give your children money to manage:
I won’t open up the debate about whether money can be given to children or if they should earn it by doing chores. I realize that, in and of itself, is a heated debate. But I will say that the earlier they start learning the value of money, the better it is for them. It doesn’t need to be large amounts — even a dollar a week is a great start. They will start looking at prices everywhere they go. Can they afford that doll with the dollar? No? Then how many dollars do I need to save to buy that doll? It is a great lesson about the value of money.
With that dollar allowance, teach your children right away about the value of saving a portion of every dollar earned. A great tip to do this is to set aside 3 jars: 1 for spending now, 1 of savings, and 1 for giving to charity. You can decide on the percentages of every dollar that go into each jar, but it sets the right tone for always putting aside for savings.
Watch money grow:
And speaking of these 3 jars, for children, it is a helpful tip to make sure that they are clear jars. Children are visual. If they can see that, week after week, that savings jar is actually growing in money, the concept becomes much more clear and easy to understand. “OH! So, if I continually put my quarters in this jar, eventually I will have A LOT of quarters!” It seems like an easy concept, but for children, if they can’t see it, it often doesn’t exist!
Teach your teens about interest:
This was a great tip from Esther Ross of icash.ca. I did a lot of research for this blog and no one mentioned such an easy method to teach kids about interest. “Charge your children interest”, says Ross. “If your teenager wants to borrow $20 bucks for gas until his pay on Thursday, lend it to him with a bit of interest!” If you think about it, it makes sense. Once they get out in the real world, mom and dad won’t always be there to lend some money — but financial institutions will. And they charge interest. It is better to learn that lesson early and know what you are getting into before you borrow.
Let them make goals: Your child wants that new shiny toy? Let him save up for it. It is a good lesson in working towards something and seeing it through to the end. Just make sure that it is not too expensive that it will take months to afford (children are NOT known for their patience!) And when your child finally has enough money, let them take their money jar to the store, go to the cash, pay with their own money, and take home that toy. There is something gratifying about knowing that you just purchased something you worked hard for!
And while they are saving for that shiny new toy, get them used to looking at deals. Teach them about online deals, coupons, flyers, and price comparisons. Let them check out the different prices weekly at the different stores. It is a good way to teach them about bargain shopping as well!
Interest in savings:
If you are ready to teach your child about the negative side of interest, it is a good idea to show them the flip side as well. Once that savings jar has a big enough amount, take your child to the bank. Let them open themselves an account. Teach your child about compound interest and look at different options such as savings bonds or certificates of deposit. There is more to interest than meets the eye!
I wish that money management had been a class to take in school, or that my parents would have taught me some important financial lessons. Unfortunately, I, like many others, learned my lessons too late. I hope to make sure to instill as much financial responsibility in my children as possible!