We live in an age of consumerism, when we may buy rather than repair and when we may borrow rather than save. But Mom and Dad have been in times of difficulty, they learned what it is like to cut back or even lost their jobs, and learned how to value what they have.
Even if parents managed to weather the economic storms without making too many sacrifices, they can still start teaching kids about money, even if kids have just entered kindergarten. It's never too early to teach kids lessons about finance.
Here are some tips that may help kids learn a little about the value of money:
- Nothing is free - at least nothing material is free. So don't just give kids things whenever you feel like it or when they beg for a pretty toy, lolly, or a new car. Do we want our kids to learn that they simply need to ask other people: parents, friends or banks for credit until they are too indebted? Do we want our kids to rent things that they cannot afford like: phones, pay television, or a house? Think before handing over that next toy that your child doesn't need.
- Give kids an allowance. Many parents give their kids an allowance so
they can have some spending money when out with friends. But giving an
allowance is also a great way to teach kids about managing their money.
Start with an amount that is small but large enough for kids to make
purchases. In so doing, kids will learn that things they want cost money
and that properly managing their money will enable them to purchase the
things they want. If kids spend all their money by Monday and don't get
their allowance until Friday, resist the temptation to give them more
money if the kids ask for it. This, too, will help kids learn the value
of managing money.
- Another way to teach kids about money is to open savings accounts in
their names. Once the account is opened, take your child to the bank
once a week to deposit a predetermined amount of money. This shows the
child the importance of steadily saving money. It might be difficult at
the outset to get kids into this habit, but once they make savings
deposits part of their routines and their balances start to grow, they
will likely grow more enthusiastic about their weekly trips to the bank.
- Encouraging kids to write down their finances, including deposits,
withdrawals and expenditures, is an effective way to teach them basic
financial analysis. If the bank supplies savings books, make sure kids
use them. But go one step further and give kids a financial journal
where they can document all of their purchases in addition to their
deposits and withdrawals. Such documentation enables kids to analyze how
they spend their money. Periodically go over these expenditures with
children, and if they're frustrated about their saving and spending
habits, work with the children to develop more effective strategies.
Kids may appreciate these small lessons in analysis down the road when
it's time to purchase their first vehicles or finance a larger expense,
such as their educations or even their first homes.
- Help kids make larger purchases but do not pay for the larger purchases yourself (see tip #1). Helping kids make larger purchases, be it a new bicycle or a video game console, is another way to teach them about money. Such purchases teach kids about long term financial goals and how it's necessary to stay diligent with savings in order to meet those goals. Paying for half is a good way to reward kids for meeting these long term goals. Perhaps lend your kids the money with a low rate of interest - they will value things that they have to earn.
