There are many things most parents believe are important to teach their young children, including proper behavior and manners, respect for others, honesty and integrity, diligent study habits, and the value of hard work. But there is one important item today’s parents are neglecting to teach their children: sound money management principles. Unfortunately, if children don’t learn about money management from their parents, they might not learn about it at all.
Children almost certainly are not learning basic financial management concepts at school. According to a survey conducted by the Council for Economic Education, just 14 states currently require that students in public schools take a course in personal finance. Given this, it appears that the main responsibility for instilling sound money management principles in children lies with their parents in the home environment.
When Should You Start?
Some experts say that it is almost never too early to start teaching children the basics regarding money management. Kids as young as three years old can understand the simple concept that money has value, and saving and spending money are at opposite ends of the financial spectrum.
For many kids, the age of five is not too early to start receiving an allowance. How much allowance is appropriate depends on several different factors, including your family’s budget, but one guideline is to give a child one dollar a week for each year of his or her age. Then the child can receive a raise of another dollar a week each year on his or her birthday.
Some experts believe that the allowance should be based on the child performing a defined set of household chores or duties, while others do not recommend necessarily tying allowance and work together. Those in the former camp note that earning their allowance by doing assigned chores or tasks helps kids internalize the concept of being paid for working or doing a job — a concept that will obviously be important throughout their lives.
Either way, it is important to be consistent in the payment of an allowance to your children — preferably on a weekly basis. Sometimes, parents start out giving their child an allowance every week, but over time, they start forgetting about it. Before long, allowance becomes a hit-or-miss thing. This is probably worse than never giving an allowance in the first place, because it is sending your child the wrong message. What you want to communicate through an allowance is that consistent effort will lead to consistent financial rewards.
Giving Financial Control
How much control parents should give their children over how they spend their money is another debatable subject. While it can be tempting to tell kids what they can and can’t spend their money on, it’s often better to give them plenty of leeway in making their own spending decisions — and in the process, learn valuable financial lessons first-hand.
Of course, you have the benefit of many years of experience, so by all means offer your kids guidance and suggestions in this area. However, whenever possible, let them make the final decisions about how to save, spend, invest and donate their money. Yes, donating to needy individuals or charitable causes should be part of your children’s financial education.
By teaching your children the importance of giving away some of their money, you will help them develop a sense of generosity at an early age that will hopefully carry on through the rest of their lives. The same goes with saving — teaching your children good saving habits early will help instill lifelong financial discipline.Some financial experts recommend that individuals (not just children) save 10 percent of their income, donate 10 percent of their income to charity, and then live on the remaining 80 percent. Therefore, you could start this discipline with your children by requiring a child earning $10 per week to save one dollar, give one dollar away and then do whatever he or she wants with the remaining eight dollars. Let your child decide where to give the money — whether to a religious organization, charity or cause he or she believes in. This way, the giving will have some personal meaning.
Set a Good ExampleFinally, remember the importance of “practicing what you preach” when it comes to sound money management. This is especially important as your children grow into their teenage years and start to gain a sense of how the family’s finances are handled. You could even involve teens in some family financial decisions, like sharing the budget for your summer vacation and letting them help decide where to go and what to do based on what the budget will allow. Whatever you do, don’t just expect your kids to learn about money management on their own. Maybe they will, but more likely, they will struggle with money management as adults if they don’t receive sound instruction as children. When it comes to money, teach your children well; this is among a parent’s most important responsibilities.