Teaching Your Children About Personal Finances

Never Too Early to Start Educating Your Children About Money Matters

by Gia Dolphin

Teaching children about personal finances is a process that, with your children’s participation, can be easier than you think.

Children have very individual personalities. Even so, they tend to mimic parents’ examples, from their attitudes about money to their influence and actions in money management. So consider an allowance or commission as their budgeting tool to help them grasp the concept of money. It can also help you know how to adjust your teaching as you observe their money personality play out.

Use teachable moments to reinforce good money management skills and help children handle money and credit matters. You are, in effect, equipping them with a priceless ability to control any kind of economic situation. At what age should children start? As early as possible or when they begin to show interest.

How will they manage their allowance money? Set ground rules or the basis for the allowance in a budget/plan that you both agree on. Use a clear strategy for spending, saving, investing and donating with children maintaining responsibility for these actions and hands-on problem solving. For very young children, their allowance may cover movies, toys and items for a collection. For adolescents, their allowance may govern their budget for personal care, lunch and clothing.

Work closely with children as they utilize their tools so they can develop a thought process that saving money is key. For example, include them when you are analyzing potential money transactions to get what you want for less. Also, show them that banks and some store machines convert change into dollar bills.

In addition to an allowance, present children with a debit card and ways they can earn money: a weekly job at home, such as dusting or sweeping up leaves in the yard, making copies at the office or managing your business Facebook and Twitter accounts. Pay them fair wages for their work and praise for jobs well done.

Until children are given control over and responsibility for money in their lives, they don’t really know the process and how much fun it can be to decide what is worth spending money on and what is not. If you would like to use other resources to further your child’s financial education, try looking into JumpSmart, a nonprofit organization with the goal of improving kids’ financial literacy.

Another valuable tool:  When your children are old enough to understand, donate unused household items as a family for tax deductions and time to help others, perhaps youth groups, seniors, food pantries and fundraising efforts. There are innumerable wise choices to make regarding personal finance. So be creative to highlight the ‘personal’ in how you and your family proceed.

Check out the following scenario: A 4-year-old child managed his allowance with a spend-save-donate/share budget, racking up $1100 in savings by the time he was nine. His parents subsequently offered and he accepted a separate savings strategy to add a college fund to the child’s budget whereby they matched whatever money he deposited into this new account.

Voila! With these simple exercises, children learn about banking, asset management, short-term and long-term investing, credit/debit transactions, assessing and conquering debt, taming impulse spending, protecting assets, starting a business, budgeting for wealth and more.