Teaching your Children about Financial Matters
While children do learn financial lessons in school, the best way for them to pick up good money skills and become financially responsible adults is to be proactive in teaching your children about financial matters. Consider the following suggestions.
Set a good example. Children frequently do as you do, not as you say. Keep your financial affairs in order, and your children will likely emulate your good habits.
Talk about it. Even four years old is enough for money lessons. Start with the names of the coins and bills; then go on to how much each is worth. Let your child pay for things at the store.
Give an allowance. An allowance teaches your children an important lesson: work means money. A steady allowance for steady work is best. Extra pay is okay for extra work. Decrease the frequency (but increase the amount) for older children. Less frequent payments force your child to budget.
Allow mistakes. At its most basic level, money is about making choices. Children who never feel the pain of their financial choices are less likely to learn how to avoid making them again. The cost of mistakes only goes up over time. If your child wants to spend all of his or her money on a video game, let him. It will be a awhile before he can afford another big purchase. That’s a good lesson in deferring gratification.
Encourage Saving. Piggy banks are good for young children, but graduate them to a savings account as soon as their maturity allows. About the time they understand interest payments, they usually have enough money to meet the minimum deposit of a better-earning money market account.
Teach Money Management. Specific lessons might range from how to compare interest rates on savings accounts to the pros and cons of mutual fund investing. But there should be one common element to all of your teaching in this area: money doesn’t take care of itself.