If parents start early teaching kids money management and savings, personal finance skills are far more likely to carry into adulthood.
Kids Model Their Parents’ Behaviors
Any child psychologist will state without reservation that the most important learning tool for children is the behavior of their parents. No matter what parents tell their children, the fact is, children emulate behaviors not words. This modeling, as it is called, is the best weapon parents have if they are trying to teach money management and savings to their children.
The Family Budget Should Not Be a Secret
Parents incorrectly believe that family finances should not be shared with children. While most would agree that amount of earnings does not have to necessarily be announced at the dinner table, some of the family financial processes and procedures should be viewed by children, if parents want their good habits to “rub off.” Allowing children some knowledge of the family budget is good. Kids need to understand that budgeting allows planning and saving, and that no family can operate without one.
Another observation children should make is the payment of bills. While they do not need to know the specific nature and amount of bills, they do need to see their parents paying bills on a regular basis and hear the explanation that bill-paying is the responsible thing to do.
Encouraging Children to Manage Money
Children have to have some money to manage if this skill is to be taught. Allowances should begin at a very young age, and, with appropriate adult supervision and guidance, kids can begin to experience the joy of having some money left over for a special treat at the end of the week or the pain of spending it all at once and having to wait 6 days before another payment is given. At this point, parents can begin to teach the skills of deferring gratification so that money is available for a later want or need.
As kids grow older, the allowance should increase accordingly. Most high school students, if prepared, can be given a monthly allowance that is expected to cover school lunches, entertainment expenses, clothing, and perhaps gas for their own driving needs. Budgeting becomes even more important when the money has to be allocated over a full month.
Developing Savings Behaviors
Saving is perhaps the most difficult part of money management for kids. We live in such a society of instant gratification that they are prone to spend every bit of money that comes in satisfying immediate desires.
It may be wise to establish a regular allowance but to withhold 5% of that allowance and place it in savings for the inexperienced child. At the end of 6 or 12 months, the child can be presented with the total amount saved, for a special purchase or event. As this practice is repeated, the child will begin to see the benefits of saving. With additional age, the child can be given gradually more and more responsibility for his/her own savings plan, so long as there is actually a plan in place.