Parents cannot start too early to train their children in the skills of financial and money management. Here are the essentials for kids.
How Do Kids Learn?
Kids certainly learn by being taught, both by parent and teachers, the necessary content and skills to be “educated.” Financial and money management, until recent times, has not been taught in schools, and children have relied upon their parents to grasp and master the skills of financial responsibility so necessary to productive adulthood. What educational research clearly shows, moreover, is that young children learn by watching their parents’ behaviors, not necessarily by the words coming from those parents. Further, learning is cemented by hands-on activity, that is, actually participating in the learning actively. The results of this research can be used to effectively teach financial and money management essentials to kids.
Don’t Make Budget and Bill-Paying a Secret Activity
You do not need to inform your children, at any age, of all details of your financial picture. However, you can certainly be sure that they observe you as you design and revise your household budget and as you pay your monthly obligations on time. By watching you do this, children will see these activities as important and valuable. The older children become, the more they can be made aware of financial circumstances. When a child asks for a new video game, for example, it is perfectly fine to respond, “I would love to get it for you this week, but the bills I have to pay won’t leave enough money for the game. Next week, there will be fewer bills, and I can probably buy it then.” These responses let the child know that you are paying your bills first and that luxury items come only if there is enough money left to pay for them. What a great lesson!
The Business of Allowances
Children should be given allowances as early as possible. There are many good lessons in money management involved in this practice. If a child spends his/her entire allowance within the first day or two, there will be the pain of knowing that nothing more can be purchased until the next allowance day. There is also the joy of knowing that there is money to buy something if the child has been careful and frugal. If the lesson of managing money for a week at a time is not being learned, then it makes sense for parents to give the allowance and then take a portion back to hold for the later days of the allowance period. The child will then begin to learn that saving money for later can be a pleasurable thing. As the child grows and the desires become more expensive (video games, cell phones, cars, etc.), the parent continues to teach by concrete activity. It is perfectly correct to say to a child, “I know you want that cell phone. If you are willing to save for half of it, I will pay the other half. Then, you can save an additional amount out of your allowance each week to pay for half of the monthly bill.” Nothing can be quite the crisis as a teen that has run out of minutes and cannot call, accept calls, or text. Lesson learned.
Larger Allowances Mean More Financial Responsibility
As kids grow, allowances should grow as well. As allowances grow, parents need to add to the financial responsibilities. Giving a teen a monthly allowance that is meant to cover school lunches, gas, cell phone expenses, clothing, entertainment, etc. will provide additional management training. The allowance is now expected to last an entire month, and lessons in budgeting need to begin in earnest. The teen needs to project expenses and surplus, dividing that surplus over the month in order to afford the non-essential expenses. Expect a few mistakes – they are inevitable. Do not bail out your teen when these mistakes are made. No one will do that for him/her in adulthood.