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There’s no time like the present to teach your children financial skills
Children not prepared for the financial world?
Teaching financial skills to our children in today’s complex financial world is as critical as teaching hunting and farming skills to children hundreds of years ago. A recent poll showed a decline since 1997 in financial literacy among high school teenagers. So what can we do to teach our children financial survival skills?
Start with yourself.
Parents impart the most critical money lessons to children. Consequently, think about your own attitudes and habits toward money. Are you a good saver, a wise spender? Thinking about this might not only help you better teach your child, it might improve your own finances.
Some experts recommend giving children a piggy bank by the time they’re five, opening a savings account by age nine, and managing a clothing allowance by age 12. Money habits form early, and bad habits get tougher to shake the older you get.
Use an allowance.
An allowance is typically a child’s first experience in managing money. Let them be responsible for certain expenses with their allowance, suggest some experts. This forces them to make choices, and choices are what managing money is all about.
Encourage kids to earn extra money.
Consider paying them for extra household chores or encouraging them to find enterprising ways to make money in the neighbourhood such as pet-sitting. Once they learn how difficult it is to earn money, they may be more responsible spending it.
Let them make mistakes.
Inevitably, the more freedom you give children in managing money, the more likely they’ll make mistakes. That’s good, say experts, because it’s an important way to learn. Let children waste their money on a cheap toy that will break in an hour or bust their budget on a clothing item (just don’t rescue them). Better to make a small mistake today than a large mistake later.
You can teach them more long-lasting habits by finding ways to encourage them to voluntarily save for, say, a new a computer game within six months.
Watch what you say.
Monitor how you respond to money questions. Telling a young child who wants a toy or candy that you don’t have the money when in fact you do, won’t fool them. Instead, make it clear that you don’t spend money every time just because you have it, and that you’re choosing not to spend it now because you want to put the money to other uses later.
Discuss household finances.
As children get older, consider showing them how you make some of your household financial decisions. Money is often a taboo topic, even within families. But showing children just how much it costs to run a household, how you are contributing to their welfare such as saving for their college education, and how you make investment and spending decisions can provide excellent, real life lessons.
Ask a financial planner for ideas.
Some financial planners teach clients’ children about finances, or will offer ideas to clients.