Many parents work hard to protect their children from some of the harsh realities of life. This is particularly true when money is tight. However, it’s important that you teach them in age appropriate ways how to budget their money. Here are some tips to teach financial education to your children.
Before Kindergarten
If your child can speak and understand complete sentences, then they’re old enough to talk to about money. In this age group, it’s more important to help them understand where your money comes from.
One of the biggest misconceptions kids in this age group have is that the bank gives their parents money to spend. In their minds, when you say, “I don’t have the money for that,” they want to know why you don’t go to the bank and get more. This is the perfect opportunity to explain that the money you earn is deposited into the bank, and the bank protects it from loss or theft by holding it for you. You can get as much as you put in, and no more.
Allowance or Spending Money
You might institute an allowance for certain chores and allow your child to spend it as they see fit. When they run out of money and ask for something else, you can explain that they have run out of money and won’t have more until they work for more.
If you don’t want to give an allowance, or you believe that chores shouldn’t be paid for, then you might institute a spending money policy. This is where you designate a small part of your budget each month to your child’s wants. For example, you might have $2 of candy money each month that your child is allowed to spend.
Elementary School
In elementary school, you’ll want to reinforce the early lessons that you have taught your kids. This is also a good time for you to have them pay for some of the fun things that they want to do.
Vouchers
One option to consider is distributing vouchers to your children for different things that they want to do each week. Assign each voucher a monetary value and explain that they spend like money. They can apply to virtually anything, from paying for gas to get to soccer practice to paying for the electricity to watch TV or play on the computer. The older they get, the more complex you can make this system.
Consequences
One of the biggest failures in parenting today is the lack of consequences for kids when they make a mistake. It’s vital that parents don’t bail their kids out if they spend all of their ‘money’. Instead, allow them to suffer the consequences, even if they have to miss an important game or miss out on a birthday party.
Secondary School
For older kids, parents need to start preparing them for living in the real world. You can continue using the voucher system, or you can use real looking play money to teach valuable lessons about money.
This is a good time to hire your kids, using funny money. Explain to your kids that they are now getting paid for school, as if it were their job. The better their grades, the more money they’ll earn. Just like in the workplace, better performers make more money.
Create a Budget
Step one is to create a budget with your teens. Let them tell you what they think that their money will be spent on. You can add on anything they missed after, but allowing them to create the budget will give you a good idea of just how much they know about where your money goes.
Create a Realistic Wage
You may want to start them out at minimum wage, giving them a small raise with each good grade or report card. Have them pay you for their bills and see how they go each month.
Don’t Bail them Out
Do not provide them with extra money, and don’t pay for things outside of their budget. This is going to be hard for them, but it will teach valuable lessons for their life.
Making Changes
Don’t forget to make changes as they get older. As they gain more experience, they will earn more money. Let this translate into your system. By the time they are out of the house, they will have a real understanding of how the world works.
Credit
Don’t forget to discuss how to develop credit. If you’re feeling very creative, you can implement a credit system with your kids, with interest rates and everything, so they can see how it works.
Lead by Example
The last of these tips is to lead by example. Your children learn from you. If you’re setting a good example, then it will be easier for them to take the same steps themselves.
No matter how old your child is, you can teach them about money. Being real with them is important, as is ensuring that you set an example that they can follow.
