Teaching Money Management to Young Children
Kids learn about importance money has in life by watching how the adults in their lives use money. Showing your child the many ways that money is used is the most constructive way to show them the value of the dollar.
Begin When They're Young
As soon as your child is ready, start showing them just how money works. Children need to understand that in order to get money, it must be earned. Teach them that the things we need in life like food and clothes have to be purchased with money and that the seller is the one who determines what to charge for the items. If there is no money then you can't buy what is needed.
Another good topic to cover is the importance of saving money. Let them know that a child with a two or three dollars could buy candy that will only last about 10 seconds, or even a cheap toy that will likely break in about 10 minutes or be forgotten about the next day. However, if that child saves the money, they can buy a better item that will probably have more value and last longer.
Have A Savings Plan
Show the value in savings by deciding on a percentage they should set aside whenever they earn money. A good sum is ten percent because all they have to do is place the decimal point one space to the left. They can then see that For every $1.00 earned, $0.10 will be saved ($53.48 earned, $5.35 saved).
This savings isn't for a better short-term item, but for a "rainy day" or even a car or college fund. The remaining $0.90 can be used for the candy or "better item" as mentioned above. This principle can teach the child self discipline for very long-term savings (i.e. a house or retirement when they're an adult).
It is a given that a six-year-old will not get the "rainy day" theory, and talking to them about the privilege of driving may not win brownie points; but after saving 10% over the years, they can see how it adds up. This is a valuable teaching for when they get their first job. They will be used to saving that 10% already
You can also share with them about putting some money to the side to give to a charity they are interested in. Concepts like this teach them even more about managing their money.
As Your Child Grows
When your child is more mature, take him or her to the bank with you and open a line of savings in their (and your) name. Once or twice a month, take your child to the bank so they can deposit their money into their account. Let them see the bank statement and watch how their money is growing with the help of interest.
Interest is a large part of spending and saving money. You will either pay more than what the item is worth or you can earn more money. Teenagers need to learn the concept that if you don't pay the debt owed within 30 days, they will pay more for the item they purchased.
A good way to prove how unfavorable or great interest can be is by role-playing. Find an item your teenager wants to use a credit card to pay for. Create a chart showing how making only the paying the minimum changes what the total debt is, how long it will take to pay the debt off with minimum payments, and how much interest (or money lost), is paid in total.
On that same note, take the number of months it took to pay off the credit card and show how much interest he/she'd be making in a savings account while putting money away to save for that item. The amount of interest isn't much, but the point to make is if you save money to purchase the item, you will only pay that sum without the additional cost of interest.
When children understand how money works they'll (hopefully) be more inclined to use responsibility when making money decisions.
Begin When They're Young
As soon as your child is ready, start showing them just how money works. Children need to understand that in order to get money, it must be earned. Teach them that the things we need in life like food and clothes have to be purchased with money and that the seller is the one who determines what to charge for the items. If there is no money then you can't buy what is needed.
Another good topic to cover is the importance of saving money. Let them know that a child with a two or three dollars could buy candy that will only last about 10 seconds, or even a cheap toy that will likely break in about 10 minutes or be forgotten about the next day. However, if that child saves the money, they can buy a better item that will probably have more value and last longer.
Have A Savings Plan
Show the value in savings by deciding on a percentage they should set aside whenever they earn money. A good sum is ten percent because all they have to do is place the decimal point one space to the left. They can then see that For every $1.00 earned, $0.10 will be saved ($53.48 earned, $5.35 saved).
This savings isn't for a better short-term item, but for a "rainy day" or even a car or college fund. The remaining $0.90 can be used for the candy or "better item" as mentioned above. This principle can teach the child self discipline for very long-term savings (i.e. a house or retirement when they're an adult).
It is a given that a six-year-old will not get the "rainy day" theory, and talking to them about the privilege of driving may not win brownie points; but after saving 10% over the years, they can see how it adds up. This is a valuable teaching for when they get their first job. They will be used to saving that 10% already
You can also share with them about putting some money to the side to give to a charity they are interested in. Concepts like this teach them even more about managing their money.
As Your Child Grows
When your child is more mature, take him or her to the bank with you and open a line of savings in their (and your) name. Once or twice a month, take your child to the bank so they can deposit their money into their account. Let them see the bank statement and watch how their money is growing with the help of interest.
Interest is a large part of spending and saving money. You will either pay more than what the item is worth or you can earn more money. Teenagers need to learn the concept that if you don't pay the debt owed within 30 days, they will pay more for the item they purchased.
A good way to prove how unfavorable or great interest can be is by role-playing. Find an item your teenager wants to use a credit card to pay for. Create a chart showing how making only the paying the minimum changes what the total debt is, how long it will take to pay the debt off with minimum payments, and how much interest (or money lost), is paid in total.
On that same note, take the number of months it took to pay off the credit card and show how much interest he/she'd be making in a savings account while putting money away to save for that item. The amount of interest isn't much, but the point to make is if you save money to purchase the item, you will only pay that sum without the additional cost of interest.
When children understand how money works they'll (hopefully) be more inclined to use responsibility when making money decisions.
About the Author:
Laura Nelson-Smith is the resident editor of Career & Finance at http://www.Schmoozins.com - an online magazine for women that gives all women a voice. Join us as a contributor, schmoozer or just hang out a while.
posted by Credit Counseling at
10:53 AM
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