I was that kid whose money burned a hole in his pocket. I just had to spend it as soon as I got it. My parents tried, with much difficulty, to get me to deposit it in my savings account before I went to a store, but usually they failed.
Now as an adult, what do I have left to show for all that money I spent years ago? I have absolutely no idea. Honestly, I can’t remember a single thing I bought with all that birthday and Christmas money, or my first paychecks as a paperboy or McDonald’s cook, other that gas for my parents’ car.
To get your children thinking about finances in the right way early, try some of these tips:
1. Be responsible with your own finances first! The single most effective method of teaching anyone is through example. If you love to get the latest toys and can’t seem to put money towards savings or investments (that new 50″ LCD TV is NOT an investment, contrary to what you told your spouse in order to buy it), then that will immediately pass onto your children as habits.
2. Start your kids off with an allowance. Make them earn their money, but be fair. Should vacuuming the whole house only earn them a quarter? On the other hand, is it worth $10? Maybe think in terms of minimum wage hourly rates. Pay a little extra bonus if they continue to do something without having to ask them, like keeping their room clean all the time, or putting away the dishes. It’s your call on what counts as a “chore” and a “bonus”, but remember to keep it fair.
3. Avoid using credit cards yourself, and teach kids that going into debt is not the best option.
4. When your child starts accumulating more savings, help them take the next step into investments. Start a Roth IRA for them and make sure they sit with you when you purchase mutual funds or stocks. Make them feel like they’re part of the decision by not only explaining the process and options, but letting them pick a fund too. It might not be the best choice, but put a little money towards it and show them how their decision turns out.
These are just a few ways to help your kids respect money and credit a bit more. There are other ways of teaching kids financial responsbility such as games, books, other activities, and even special schools, but we’ll discuss those at a different time.