It is never too early to start teaching children the value of money and the essential concepts of budgeting and saving. In addition to explaining the source of money, parents should teach children how to save and spend wisely. Children of all ages can learn money management skills. The sooner children learn that it is better to earn interest than to pay it to creditors, the more prepared they will be to manage their money as adults.
Money is Something that You Earn
When children see money dispensed from an ATM, they may not understand that their parents had to work to earn the money and deposit the funds in the bank. Teach your child that banks are not the original source of money. It is a place to store money until you need it. Provide children with the opportunity to earn extra money by performing various tasks according to their ability. This will help them to develop a strong work ethic and understand the relationship between work and earning money.
Do Not Spend It Right Away
Teach your children to delay gratification and avoid spending their money as soon as they receive it on impulse purchases. Allowing them to manage their own money is a good thing. They will learn that spending all their allowance on one toy or a game as soon as they have enough money will not leave any funds to purchase big-ticket items on their wish list that they may want in the future.
Save for the Items You Want
When your child wants a new toy, tell him or her to set some money aside to pay for it. This demonstrates the principle that the sooner you start saving, the faster you can reach your goal. Once the child has the funds, schedule a trip to the store to allow him or her to purchase the item. This reinforces the concept of working toward a goal and reaping the reward. Countering the buy now, pay later mindset may keep them from being in intractable debt when they are adults.
Learn How to Budget
Planning is part of life. Children should learn to formulate a budget and keep track of expenses. This ensures that the child will have sufficient funds to pay for living expenses, including rent, food and utilities. A portion of the funds should be allocated for savings and entertainment. Proper money management allows the child to donate to charities if he or she wishes. The budget should also include a rainy day fund for unforeseen expenses as well as future purchases.
Comparison Shopping
Teach your children that once they select an item, they should comparison shop to find the best deal as a way to reduce costs. You can use a trip to the grocery store as a teachable moment. Show them what you need to buy at the store and the price range of each item. Ask them to compare the prices, clip coupons and look for sales to determine the best deal. This will show the child how saving money on purchases can increase the funds available for savings and future purchases. Consider allowing your children to keep the extra savings as a way to reinforce the practice.
It is never too soon to start teaching you children money management. Modeling and explaining proper money management will help you instill valuable life skills. This will help ensure that your children have a sound foundation and the experience necessary to manage their finances when they reach adulthood.
