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Some parents make the mistake of waiting until their kids are older before they start discussing money matters with them. Some people wait right before their children are packing up to live on campus for their college education. While the financial lessons will be of most use when they are away at college, teaching them the lessons right before their leave will be futile. It will be too late.
You see, the best lessons are not taught in theory - they are lived. So if you want to have children who have a great financial sense, then you need to start teaching them while they are young.
According to a study published on SDState.edu, financial literacy goes beyond just teaching the right knowledge and skills about financial management. It is also important when it comes to the economy in general. When a person has good personal finances, that affects the economy of the country. If people do not have debt, they will have the power to buy things in cash without compromising their future ability to buy more. In an economy that is 70% dependent on consumer spending, that is good news.
The study mentioned that when you impart financial lessons for kids in your own home, these will be taken with them when get older. And the best place for children to learn is with their parents - at home. That is part of the responsibilities of child-rearing. You need to make sure that your children at well equipped with the knowledge and skills that will keep their finances healthy so their generation can influence the nation’s economy in the future.
4 rules when teaching your kids about money using their allowance
But of course, teaching kids smart money management skills is easier said than done. After all, if we as adults still find it hard to put the lessons into practice, it will be more challenging for kids.
The first dilemma here is, how do you go about teaching financial lessons for kids? There are certain concepts that you need to teach them like budgeting, saving and smart spending. But how can you put these concepts into terms that they can understand?
The answer to that is in their allowance.
According to an article published on PsychologyToday.com, the allowance of a child is a powerful thing. This is the very first money that any person will receive that comes constantly. Not only that, this is the first cash that your child can choose to use under their own terms. The article said that this is the first time that a child is exposed to the concept of personal choice.
Believe it or not, some parents do not believe in giving their kids allowances. That is because they are unsure about how their children will react to it. You want to be able to teach your children how to manage their money and the only way you can do that is by letting them rule over their own finances.
Of course, parental guidance will always be needed. This is why you should try to implement these 4 rules on your child’s allowance money so they can learn the right financial lessons for kids.
- Define what the allowance is for. While your children are still young, you are still responsible for most of their financial needs. But that does not mean their allowance will not be used on some of their needs. For instance, you can tell them that their allowance will be intended for their personal expenses while they are in school. That includes food and school supplies that do not exceed a certain amount of money (e.g. $10). Or you can give them a sizable amount of money that will not only include school expenses, but also any entertainment purchases (e.g. video games, ice cream, hanging out with friends, etc). Some parents impose a rule that makes their kids responsible for buying their own toys and that the only time they will receive toys is during birthdays and holidays.
- Teach them to allocate money. This is where budgeting basics come in the financial lessons for kids. You can give your kid $5 a day - $3 will be spent in school, $1 will go to their piggy bank and the other $1 will go to a charity of their choosing. Let them understand why all these are important - especially the last two. It might take some time for them to willingly give towards savings and charity. However, if you impose this rule long enough, it will become a habit that they will take with them until they grow old.
- Allow them to decide. The $3 that they are allowed to spend in school can be something that they will have free reign over. While there may be purchases that you will not agree with, let them make it. Just be sure to point out when a certain purchase might endanger a future spending that is more important. For instance, when summer is coming up, tell your kids that they will not be receiving as much allowance money as they used to (or they will not be receiving any at all). It might be best to start saving more so they have money to spend during their summer days.
- Let them learn from their mistakes. While you may feel bad when your kids are left out by their friends because they do not have the money left to spend, do not bail them out. That is a lesson learned. You can be sure that the next time they are faced with another spending choice, they will be more cautious about whether that expense is necessary or not. It is your job to remind them of the consequences - but not to save them when they make a mistake. Let your kids struggle but let them feel your support. For instance, if they ended up spending all their money and could no longer afford to buy a toy, help them make a savings plan so they can buy that in the future.
Techniques that will develop positive financial habits in children
Hopefully, all of these rules will help keep your child from student debt problems. These financial lessons for kids will teach them that being responsible with money is not a choice, it is an obligation.
After the Great Recession and with the current news about the still growing student loans, it is very important that we teach the next generation not to make the same mistakes of their elders. In fact, various states understand the importance of teaching personal finance to children.
According to the data found on CouncilForEconEd.org, 50 states and the District of Columbia have included economics in the K-12 standards. 19 states require personal finance lessons to be taught in the classroom. This is 5 more compared to 2011. All of these hope to boost the lessons that parents should be teaching their kids back at home.
Apart from these, there are other things that you can do as parents to help you children become better financial managers. Here are some tips that we have for you.
- Come up with games that specifically teach your children about money (e.g. Monopoly, Life, etc).
- Discuss the household budget in front of your kids. This is a great way for them to know the current financial situation at home
- Let you kid tag along in shopping errands. Give them something to do like adding everything that you put in your cart so you both know how much you are required to pay when you check out.
- Open a bank account. This will make them feel more of an adult when it comes to saving their money.
- Let them look up to you as an example of how to manage money wisely. In the end, the best way to teach financial lessons for kids is to live it.