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Family Finances
Teaching Money Lessons
By Roger Wohlner
CERTIFIED FINANCIAL PLANNER™ Practioner, Asset Strategy Consultants
One of the most valuable lessons parents can teach their children is how to responsibly manage money. Some strategies to teach these lessons include:
Pay your children a weekly allowance, so they learn to budget money. Some people feel tying an allowance to performing chores instills the concept of working for pay, while others feel chores should be performed without pay as part of the child's family responsibilities. The allowance should increase with age, but should be large enough so children have money left over to make their own purchasing decisions. As much as possible, let your children spend the money as they wish, but don't bail them out when poor choices are made. Let them live with the consequences, so they aren't tempted to repeat their mistakes. That doesn't mean you can't discuss options or encourage them to make other choices, but the final decision should be theirs.
Give your children opportunities to earn extra money, so they learn that extra effort results in rewards. This gives them an opportunity to earn money for special purchases, while teaching them the rewards of good work ethics. As your children get older, they may want to take on part-time jobs for extra cash. While the jobs can offer good experience, they should realize that doing well in school is their primary responsibility. Go over your children's pay stubs with them, making sure they understand what taxes are deducted for and how much of their pay it represents.
Encourage your children to save, so they make saving a habit. It's usually easier to save if your child has a specific goal in mind, such as a new toy or bike. Many children will need incentives to encourage them to save. You can require a certain percentage of their weekly allowance be set aside for long-term savings goals. Or you can match your child's savings, perhaps contributing 50˘ for every dollar your child saves.
Teach your children the basics of investing, so they learn how to make their savings grow. At an early age, help your child open a savings account. Use the bank statement as an opportunity to explain the concept of compound interest. As your children grow, start to expose them to other investment alternatives. Around age eight or so, explain how businesses operate and how investors buy and sell stocks. Ask for their input on which businesses would make good stock investments, then help them research those choices. They may want to use some of their savings to purchase those stocks. Teach them how to follow stock prices and how to review annual reports. Let your children decide when to buy and sell the stock.
Keep in mind that how you treat money is probably the most significant influence on your children. If you make large purchases only after careful research and price comparisons, your children will learn to be careful before making a purchase. If you use credit cards cautiously and explain how to select a card, what items to charge, and how to pay off the balance every month, your children will learn not to abuse credit cards.
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