How to Educate Your Kids on Proper Money Management
January 19, 2014When it comes to money, kids today are presented with a world of choices that most of us parents didn’t have to worry about when we were young. You certainly didn’t have to think about the latest iPod or iPad, $100 tennis shoes, or any other purchases of that magnitude. Depending on your age, credit and debit cards may not even have been around when you were younger – if you grew up when I did, you either had money or you didn’t.
The world changes for better of worse, and those changes have made teaching your kids about proper money management that much more important. Since it’s not a topic most schools embrace, the responsibility falls solely on you. For a few pointers on how to teach your children how to effectively manage their finances, read on.
1. Show Them How to Get on a Budget
To get your kids on a budget, they’re going to need a little guidance, despite what they may tell you. Your goal shouldn’t necessarily be to keep track of their limited finances, but rather to show them how money works. Let’s assume your children have no savings and no job, but that they do get $15 per week in allowance. Have them record that “income” on a sheet of paper. After that, every dime they spend should be accounted for. Continuing this process can do worlds of good in teaching them the effects of spending and saving.
2. Use Your Own Successes or Failures
If you have no credit card debt, break out a few statements and proudly show your children those big fat zeroes. If that’s not the case, show them how much money you’re wasting on interest payments every month. Giving abstract lectures about credit card debt is one thing – showing real world examples, however, is going to be much more effective.
3. Teach Them to Make Their Own Money
Kids of all ages can make cash, whether it’s a lemonade stand, a landscaping business, babysitting for the neighbors, or dog-walking. Believe it or not, there are many business ideas for kids that work well. The sooner they realize all the opportunities out there for the taking, the better off they’re going to be.
4. Motivate Them To Save
Opening up a bank account with your children is a great way to get them started on the road to money-saving. However, to really drive home its importance, consider upping the ante. Offer to match their savings with 50 cents on the dollar or if you want to get aggressive, make it a dollar-for-dollar match. Once the savings start to build, tell them this is the way a lot of 401K programs work, teaching them one of the many real world benefits of saving money.
5. Start Them With a Debit or Secured Credit Card
Instead of adding your kids as authorized users of your $10,000 limit Amex card, educate them on restraint. Start them off with a debit card tied to an account with a fixed amount of money in it or open up a secured credit card with the same parameters. Once the money runs out, that’s it. This can teach them very quickly the importance of putting that budget into effect.
6. Stay Involved
If you go with a credit or debit card of some kind, be sure to stay involved throughout the process. If you have a match program in place, insist on seeing statements each month and reviewing them with your kids so you know how much to contribute and can offer your opinion on how they’re doing. Staying on top of your kids’ finances is essential.
Once you’ve run through these measures with your children, you might find that it motivates you to take a closer look at your own finances. Aggressively tackle your credit card debt so you can start funding that 529 plan for the kids or even your own retirement account if it needs attention. Educating your kids on finance is great, but if you can use that process to motivate yourself, it’s even better.
What are you doing to teach your kids bout money management?