Kids and Money: 5 Keys to Teaching Kids Money Management Skills
One of the best gifts you can give your children is a strong
foundation when it comes to money. True, we all strive to
start our kids off with a leg up -- a savings account, a savings
bond, some money to pay for college -- but there's something
that's just as important, more important really, than the
money itself: The knowledge of how to manage money to their
advantage, for their entire lives.
Imagine the advantage you would have today had you been money
savvy from your childhood on up. Your kids, knowing how to
effectively spend and save their money today, can have a better
quality of life tomorrow.
Kids and Money: The Sooner, the Better
So when is the best time to start teaching your kids about
money? The sooner, the better. In fact, more than 70 percent
of parents believe educating kids about finances should start
no later than 1st grade, according to a survey conducted by
Northwestern Mutual, a Milwaukee-based insurance company.
That's when most kids are 6 or 7 years old.
Many experts say that if your child is old enough to ask
for candy or toys, they're old enough to start gaining some
financial awareness. Even as soon as they learn to count you
can start teaching them about the concept of money using pennies
and dollar bills.
But don't despair if your kids are in their teens and you
haven't had the "money" talk yet. For you, NOW is
the best time to teach your child about money.
That's because teaching children about money is beneficial
no matter what their age. As Joline Godfrey, a social worker
who founded Independent Means, an organization that teaches
children how to manage money, says, "It's developmental,
not chronological. You can treat your 15-year-old as a 5-
to 8-year-old, teaching them the basic knowledge of financial
literacy. It's like learning a new language."
Tips to Teach Your Kids About Money Now
Many parents experience great anxiety when it comes to talking
to kids about money. But you don't need a background in financial
planning to give your kids foundational financial knowledge
that will stay with them into adulthood.
And it won't come a moment too soon. Alarmingly, "In
2001, more than 120,000 young people under the age of 25 filed
for bankruptcy," says Neale S. Godfrey, chair of the
Children's Financial Network, "If children don't learn
solid money skills at home or at school, then they are on
the path to a lifetime of financial instability."
Tip #1: Make Money a Part of Daily Life
Involve your kids in the daily aspects of money. When you
go to the grocery store, let them see the price tags on their
favorite foods and the final bill at the register. Show your
kids totals on your credit card statements and involve them
in your monthly bill paying. See if they can help you figure
out how much money you'll need for food, utilities or a special
Tip #2: Give Your Kids Allowance, but Not Too Often
Most experts agree that giving kids an allowance helps them
to build money awareness -- quite simply, if they're going
to learn about money then they need to have some to work with.
But giving kids a weekly allowance may defeat the purpose
for two reasons:
- There's no incentive to plan: If your child spends his
entire allowance in a few days, he knows he only has to
wait until the end of the week for a fresh supply.
- They're too small: Since the weekly allowance is typically
small, kids still have to ask parents for money for other
things. It's then hard for kids to see that money often
has to be spent on necessities and not just "wants."
This is why a monthly allowance, a larger amount that your
child must manage, is often times more beneficial.
Tip #3: Give Your Kids Choices
This ties in directly to Tip #2. Your kids must have the authority
to make choices with their money, just as they'll have in
the real world when they're older.
The Money Savvy Pig &
Cow Piggy Banks
Winner of the Parents' Choice Foundation Gold Award
and honored as a USA TODAY "Product of the Year,"
the engaging Money
Savvy Piggy Bank and Moolah Cow Bank will teach
your kids more about money in a few weeks than your
parents ever taught you! That's why it has been recommended
by so many other major media, too including:
- Daily Herald
- Baltimore Sun
- Wall Street Journal
- Parents' Choice Newsletter
- Journal of Financial Planning
- CBS MarketWatch
- Chicago Tribune
- SFO Magazine
- Real Estate Business
- Chicago Parent
- Journal of Financial Planning
- Crain's Chicago Business
- San Diego Union-Tribune
- Arizona Republic
David Paller, a certified financial planner, says, "The
worst mistake a parent can make about money education is to
not teach them [children] about choices." Kids must understand
that, along with having money to spend now, they need money
to save for short-term goals, money to invest for long-term
goals, and money to donate to charities or others in need.
It can take some work to get kids to think about saving money,
but tools like the award-winning Money
Savvy Pig piggy bank are a fun way to get kids, even those
who are really young, to grasp this concept. The
Money Savvy Pig -- there's also Moohla the Money Savvy Cow
-- has four chambers, one for each of the "money choices"
that children have when they earn or receive money:
It's an ideal piggy bank for any child because they have
total control over where their money goes. The piggy bank
is translucent, so they can watch, and you can monitor without
making them feel controlled, as their savings grows and shrinks
based on their own financial decisions.
The bank will naturally open up money discussions between
you and your child as you discuss which chamber should be
used for things he'll want in the future, for things he wants
now and for helping other people.
Tip #4: Teach Your Kids About Responsible Spending and
Once a child is given control over their own money, let
them spend some so they can learn the consequences of their
choices. For instance, your child may have been saving money
in his Money Savvy Pig for a bicycle. He then may decide that
a pair of $150 shoes catches his eye, and spend his savings
on that, more readily attainable, item instead.
Let him. Don't try to convince him to "save" his
savings -- when he hits you up later for the bicycle because
his savings is spent, that is the time to explain that he'll
now have to wait even longer for his bicycle while he saves
up the money once again.
Sooner or later -- as long as you don't bail him out -- your
child will understand that he must prioritize the items he
wants and have some discipline in what he buys in order to
reach those longer-term desires.
Tip #5: Be an Example for Your Kids
As in all areas of life, kids will echo your habits, attitudes
and feelings about money. If the monthly bill-paying ritual
is a stressful even for you, chances are it will also be for
Show your kids by example how careful planning and making
responsible spending choices makes your financial situation
run much more smoothly. Also show them the consequences of
things like credit card debt and high interest rates, and
explain how to avoid them. Share with them your own long-term
goals and demonstrate how you're planning for them financially.
Explain to them that part of your paycheck from work goes
to paying taxes, part goes to necessities and part is for
saving and spending right now.
We know finances can be hard for parents, too. Most everyone
can benefit from The
Top 10 Ways NOT to Throw Your Money Away in 2005 for some
great tips to stretch your own dollar this year.
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