Raising Financially Responsible ChildrenWednesday, September 14, 2011

While most of us will agree that financially responsible children are likely to become financially responsible adults, when it comes to teaching children about money, many parents are not sure where, and when to begin. CredAbility offers tips to help parents get started.

Take a Look at Your Own Money Habits
“The best lessons are taught early,” said Mechel Glass, director of education for CredAbility. “It is important to remember, though, that kids will learn most about how they handle money from what they see you do.” The first step in raising financially responsible children is to assess your own money management skills. Do you pay your credit card bills in full each month? Do you save up for things you really want or just charge it and pay for it later? Do you have a spending plan and do you know where your money goes each month? Making changes in your own spending and savings behavior will not only help you as you talk to your children about money, but will improve your financial outlook as well. If you need help getting started, consider taking a FREE online webinar, “Where Do I Want to Be in 5 Years,” at www.credability.org/education.

Start Early

A kindergartener who saves just $5 per week in an account paying 2 percent compounding interest will have $3,867 when they graduate from high school. Even preschoolers can learn the basics of saving. “A piggy bank or coffee can is a great first savings plan, and kids can see the immediate result of their efforts as the level of coins rises in the bank,” said Glass.

As your children grow, it is important that their savings plans grow with them. Consider taping a picture of an item they are saving for on their savings jar. Each time they make a “deposit,” they will be reminded how their efforts will pay off.

Elementary school might be the right time to open your child’s first savings account. Some schools offer banking programs where a local bank works with the school and kids can make their own deposits into their account. Once their account is established, they can make deposits at school or at a local branch office.

Talk About Money with Your Children

As adults, it is sometimes tough for us to distinguish between wants and needs, so you can imagine how difficult it must be for a 9-year old who is convinced he needs the latest video game. Spend some time talking about the difference between something you need to live and something you would like to have.

When you go to the grocery store, let your children help you shop by finding items and comparing prices between brands, looking for the best deals. Back to school shopping provides a great opportunity for kids to practice their decision making skills. Give them a budget and allow them to shop. They will need to make choices based on their budget, such as choosing several store brands in order to have enough money for the special backpack or binder they want. Consider letting them keep what they don’t spend as an added incentive to shop wisely.

Let them see you identify something you would like and then make a plan of how you will save up for it. Perhaps you will give up your morning coffee stop for the next month to pay for a new purse or lamp you’ve got your eye on. Your commitment to saving will speak volumes to your children.

Allowance

There are many philosophies about giving children an allowance, but most agree that an allowance is a great way to help children learn how to handle money. Once you have decided that your child is going to receive an allowance, establish the amount and the schedule for when it will be paid. Then talk with your child about the allowance and your expectations. Consider having the child set aside part of the allowance to be saved and the rest to spend. You might even provide 2 banks or envelopes—one for saving and one for spending, so it is easy for your child to know the difference. If your budget permits, you can encourage further saving by matching any of the “spending” money your child agrees to save instead. If they save $2.50 from their allowance and you match it to save $5.00 every week, their savings will grow quickly.

Help them Set and Achieve Goals

Once your child has identified something she would like to have, help her figure out how to get it. If she is computer savvy, she can do some comparison shopping for the best price. She can create a written savings plan outlining how much the item costs, how much she will be able to save each week, and when she will likely have enough to make the purchase. If possible, provide opportunities for her to earn a little extra money to use toward reaching her goal. This is more than a great financial lesson. The sense of accomplishment that comes from setting and achieving goals is a feeling every kid should experience regularly.

Let them Make Mistakes

Just as it was instinctive to stop your child from riding his bicycle into the street, you will be very tempted to stop him from spending his money in a way you might think is foolish or wasteful. Resist the temptation. Some of the best lessons your children will get will be from making mistakes. And lessons learned now will stick with them for a lifetime.