As an adult did you find yourself in some precarious financial predicaments? Did you look back and think, well I wish I had known how to maintain my finances more carefully? If you are one of the many Americans who has thought about this, you may be thinking about how to instill good financial and money managing habits in your own children; to prevent similar trouble in their futures. Ultimately once they are making money on their own, the consequences of their spending habits are their own, but you can give them the tools they need to make smart choices and avoid costly mistakes.
Starting with tweens and early teenagers parents should be compelled to institute good spending practices. It is often difficult for a young mind to truly understand the value of a dollar, and that it does not magically appear in a wallet whenever it is needed. Think of ways to involve your child first hand in the shopping expenses of your household. For instance, setting up a budget for expenses, and planning ahead of time what will be purchased, looking in sales fliers and circulars for the best price and coupons. One way to make grocery shopping interesting is challenging your child to find the best price on an item with multiple units, like toilet tissue or paper towels, and showing them the actual cost of an item per unit. Just because one brand is on sale does not mean it’s the best deal. Smart shopping techniques are important in learning how to make the dollar stretch further.
Another good exercise for your older children is having them periodically make a budget for what they spend in a week on eating out, shopping, entertainment, gas if they are driving age, and so forth. It may surprise them to see the grand total on paper. If you are footing the bill for most of that and they don’t really see the money change hands, have them put on paper what they think it would cost and show them the reality of how much you do spend; either by showing receipts, a highlighted bank statement, checkbook ledger, or your own budget. You could also show them your energy or water bills, and track them over a couple months while instilling good conservation habits; to see if the total fluctuates from month to month.
Most experts agree that an allowance is an important teaching tool. While a child should be expected to participate in household chores regardless of being payed for them, an allowance can be linked to responsible behavior, instead of direct payment for chores; if you choose to structure it that way. Structure is the key word though, as far as using allowances as a teaching tool. Setting up guidelines for how the money will be used and asking your child to save a portion each time is a great way to instill good habits young. Setting up a youth bank account for your child and requiring them to sock away a little of their allowance into their savings will introduce your child to how to manage a checking and savings account. It’s a real world experience that they can get hands on experience with early. When your child asks for a new toy or gadget,ask them to figure out, based on their allowance, how much they would need to set aside and how long it will take to reach their goal.
Allowance Do’s and Don’ts
- DO give your kids an allowance. Many people that kids should get half their age in dollars each week, however you should use your best judgement and consider how much you can afford.
- DO discuss what you expect your kids to pay for with their allowance.
- DO let them use their own money for the extra stuff in life they want. When a child has to spend their own money they will think more critically about where and what they are spending it on and this teaches them value.
- DO set up a savings account for your children. This can teach them how to earn, track, and spend responsibly in a real world scenario.
- DON’T make younger kids pay for things like their own school lunches or necessities like school supplies, unless this is built into their weekly allowance and you want them to experience the money changing hands part. Keep in mind that this might be better reserved for teenagers, and you don’t want the things they need, hinged on their ability to handle and keep track of money, as kids are prone to making mistakes.
- DON’T let grades influence the amount they receive. It might be damaging to penalize your child who is having trouble swinging straight A’s and encouragement is paramount.
- DON’T micromanage. Occasionally your child will ask for more money, but before you open up your wallet ask them to write out their expenses to see if they can pare down their personal spending. As they age they may need incremental increases, but look carefully to see if they are being responsible. They can and will make mistakes and that just comes with the territory. Give them enough space to make those errors and learn from them as well.
As teenagers become adults they may be tempted to get a credit card. It is a powerful temptation for kids to spend money on credit, and its hard for some to really see what costs are actually involved in the use of credit. Tell them, and repeat often, “ you have to have money to spend money” and practice what you preach! It is important to show how damaging a high interest rate rate on a card can be when compounded over several months and how easily they could find themselves in a financial hole. Make sure they understand that credit is a privilege, not a right, and that if they abuse it, they will lose their ability to get more. To get them started, try setting them up with a secured card with rigid criteria, wherein the cardholder has to back it with cash first. Once the training wheels come off, and they potentially get an ordinary credit card, encourage only sound purchases and that the balance be paid off on time every month. It will help them exponentially to hear this, and have someone hold their hand for the first few years of learning how to take care of their own financial obligations. You may want to discuss with your child the importance of a high credit score, what creditors look for in your credit history, and how to manage your credit. Show them your credit report and what it looks like “on paper” to a potential creditor.
At Orlando Bankruptcy, want your family to succeed financially and believe that anyone can achieve this. We are dedicated to guiding your family through the murky waters of debt and bankruptcy and we hope that the resources we provide are useful in helping you meet your financial goals and needs. Please contact us if you have questions regarding your debts or we can assist you in anyway.
Here are some fun and interactive websites for children to learn about money management: