Most people want to make good financial decisions but MANY have never had the opportunity to learn how. Unlike math, English or science—personal finance is an at-home curriculum learned either through trial and error or, for better or for worse, mom and dad.
One of the simple beauties of being a child is not having to stress about, or even think about, money. However, once little Timmy is handed his first paycheck there's nothing stopping him from spending it all in one place. Many young adults begin earning a monthly income without a shred of know-how toward managing their personal finances; the metaphorical equivalent of entering into a NASCAR race before taking drivers ed. By introducing practical financial lessons to your children early on, you can teach them how to spend wisely and delay gratification. Thus shaping your child into a patient and sensible person that may think twice before going into debt to buy something he or she wants rather than needs.
Here are some effective ways to increase your child's money smarts while still letting "kids be kids."
1.) Use teachable moments
Children learn about money by observing adult behavior so you want to be ready to respond to your child’s curiosity about money right away. For example: When getting cash from the ATM, explain to your child that you are taking money out that you had previously put into your account.
2.) Use an allowance as a teaching tool
Keep in mind that the purpose of an allowance is to teach money management, not the value of labor. Having an allowance allows a child to practice making his or her own money decisions.The next time you go to the store, tell your kids to bring money if they think they might want to buy something. If they ask you for something after running out of their own money, explain that they'll have to wait until next allowance day.
3.) Use the three-jar system
Many parents are ditching the ol' piggy bank for the clever three-jar system. Three clear jars give kids a visual representation of their money coming in and going out. Label one jar for saving, one for sharing and one for charity. Financial literacy is about making choices. The three-jar system is a great framework for you to teach your child to make choices with his or her allowance.
4.) Help him or her set a savings goal
Think of something that your child has on his or her wish list. Help them set a savings goal and discuss ways they can achieve that goal. This is a GREAT motivator for saving money.
Introducing these practical lessons will teach your kids the value of a dollar, promote fiscal accountability and make them less reliant on the Bank of Mom and Dad. It's never too early (or late) to start raising a responsible money manager. Try these tips yourself and let us know how they helped.