Teaching your children financial responsibility: The basics
It’s never too early to teach your children about finances. And while “finances” may not seem like a word you would usually apply to a child’s allowance, what they learn early on about spending and saving can stay with them for a lifetime.
The marketers of clothes, toys, games and food that appeal to young people are experts at hitting just the right chord to make their product seem like something your child can’t live without. So how do we teach our children financial responsibility when it appears the rest of the universe is goading them to spend, spend, spend?
First, get them while they are young. It is much easier to develop a good habit than to break a bad one. Plan on spending a lot of parental time and patience on the project to make it interesting. Encourage your child’s involvement in the financial decisions that affect them.
Having an allowance and the ability to control their money is a good way for children to learn about finances. Attaching responsibility to their allowance shows children that the source of money is work. Once children have the money, the hard work begins.
Now comes the trick of teaching them the balance between spending and saving. One effective way to do this is to offer to match, dollar-for-dollar, the money they put into saving. It’s a great incentive to get them to pay attention to what they are actually putting away.
Furthermore, allow them the ability to withdraw money from their savings account if they want. Giving your child responsibility means allowing them to live with their choices, good or bad.
Once your child has the savings habit down, it’s time to consider investments. One way to introduce children to this new realm of finances is to open a mutual fund account that will be funded entirely with your child’s money. Once the statements start coming, I encourage you to sit down with your child and teach them about dividends, capital gains, growing account value, etc.
These tips, if implemented at an early age, will hopefully give your children the knowledge and good sense they will need later in life to be financially sound.
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