Teaching Your Kids About Money
Do your kids know the value of a dollar? Or do they still seem to think that money grows on trees? By teaching your children about money management when they're young, you'll be helping them make wise financial decisions in the future.
Money Basics
Begin by making sure your children know the basics of what money is, where it comes from (and that the ATM isn't a "magic" money machine) and how adults earn it. For young children, help them learn how to count money. Older children can begin learning concepts about budgeting and real life finances (let them know paychecks aren't just for "fun" things -- adults need to pay for mortgages, car payments, etc.). And teens need to develop strong money management skills to prepare them for living on their own. Make sure your teens know the dangers of credit card debt (explain to them just how much they pay to the credit card company in interest) and the importance of savings.
The 10-10-80 Plan
After you've explained the basics, set up an allowance system. You may also want to provide opportunities for them to earn extra money by doing special chores. Then help your children set up a spending plan. This will be crucial in helping them learn financial discipline for when they are older. One of the best rules of thumb for money management is the 10-10-80 plan. This means that you give 10%, save 10%, and live off the 80%. When teaching your children the 10-10-80 plan, give each of them 3 mason jars or piggy banks. Label one "giving," one "saving," and one "spending." You may even want a fourth jar for special savings projects (like a certain video game or new bike).
Help your children calculate what 10 and 80 percents would be for their allowance amount, and make sure you give them their allowance in small enough denominations or coins that they can easily divide their money between the jars. Older children might even keep a very basic ledger for each jar of deposits and withdrawals.
10% - Giving Money
The first 10% is dedicated to giving money to a church or charity. This will teach your children a basic sense of philanthropy and compassion for others. If your family is not active at a place of worship, research charity organizations that your children might be interested in. They might be drawn to an organization that helps abused or neglected children, or if they love animals, they may want to give to a local pet shelter.
10% - Saving Money
Their next 10% will go into their savings jar. You may even want to set up a savings account for them at the bank. This will be separate from any short-term savings goals, such as saving for a new toy. Their 10% savings jar will be a long-term investment that they can use for the future (i.e. for their first car or to help with college). If your child is old enough, explain how interest works and how much they will have in 10 years if they put X amount of dollars into their account every month.
80% - Spending Money
The rest of their allowance can go into their spending jar. Teach them that as an adult, "spending" doesn't mean it all goes to fun things. Let them know that the spending part of an adult's budget also includes things like paying for your house, your car and your food. So while your children are too young to have financial responsibilities, let them know that the money for things they buy should only come from their 80% jar and not their giving jar or long-term savings jar.
Your children can either use their "spending" jar or a fourth jar for short-term savings. Let them know the importance of paying for things in cash and not getting trapped into credit card debt when they become an adult. Let them know that just because banks will let them borrow money, doesn't mean that they can buy whatever they want. Teach them self-discipline by saving up for things they want.
Money Lessons
Also remember that you are their biggest role model for financial management. If you tell your children to give away some of their money, make sure you are doing the same. Provide them a model for generosity and compassion for others. Volunteer at a local charity, donate clothes to a homeless shelter, do kind things for your neighbors. If you show no desire to help others, chances are your children won't either.
And be careful how you talk about money in front of your children. If you are obsessed with things you can't afford, are always paying bills late or are always stressed out about finances, your children will notice that money is in control of you -- not the other way around. So teach your children now how to manage their money so they can live a life of wise financial spending.
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Copyright by Family First 2007. All rights reserved.
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