Raising Financially Aware Children - Money Management for Kids

In this era of living paycheck to paycheck, it is only wise to teach our children about money and finances at an early age. In addition to instilling financial responsibility, it will also help with everyday math and decision-making skills. Here are a few good tips to start with:

1) Give your children an allowance each week for doing age-appropriate chores around the house. You could also give "bonus" incentives for good school grades. Set the terms of the allowance to be received, and make it clear and concise to the child. Example for a 6 yr old child: Make his/her bed daily, and keep their room clean. Set the dinner table daily, help with pets, pick up the yard, help clear the dinner table, or take out the trash. If all their chores are completed each week, give them their full allowance; if anything is missed, or not completed, deduct some from the allowance. Explain that this is the way a job works, you get paid for what you do, and don't get paid if you take time off.

2) Build math and money skills early on. Sit down with your child and go through the money relationships, i.e. four quarters = $1.00. When the child has a good grasp of this concept, next time you go grocery shopping, let them pick out some of their cereal, snacks, drinks, etc. Set a dollar limit for the purchases and let them go. When they are finished, review their selections with them. You can discuss alternative choices to save money, or to stretch the budget further. For example, the child chose a 12-pack of A & W Root Beer. Show them that by buying the store or generic brand of root beer they could save X amount of money. Same with snacks and cereal. This will make them a more thrifty shopper. On another note, while shopping, have them check for expiration dates on specific items such as milk. Explain the importance to them.

3) Teach responsibility and judgment. Have the kids make a "spend" jar and a "save" jar. Let them decide how much they will put into each, weekly. For their "save" jar, make a simple bank book using Word or Excel, and help them make appropriate entries into the "book". Discuss the role of banks, and how they work. Offer incentives for their "savings", such as: at the end of the month, add up what is in the "save" jar and explain that the bank (you) will pay .05 or .10 for each dollar in the save jar. Add the amount into the bank book. In today's world of ATMs, it could be a disastrous effect if 'fees' are not considered when balancing money. Explain this concept to the child. Tell them that everytime a 'withdrawal' is made from the savings jar, they are subject to a .05 or .10 cents per dollar fee, whatever you had decided for the interest rate.

4) Set rules for spending, however, allow the child to make mistakes as well. We all learn from our mistakes. If they get their allowance one week, and spend it all the same day, do not give them more money until the next allowance day. Again, point out the similarity between their allowance and a paycheck. Ask them what they could have done differently in their decision-making. Don't be harsh, just explain the importance of budgeting money. Sit down and set up a budget for older children. See if they can stick to it, and that they made it realistic. Discuss making frivolous purchases, and how to use sound judgment.

5) Finally, kids learn by the example we set. They need to see parents making sound financial judgments. Include your children in discussions of making large household purchases, i.e. a new TV, vacation, etc. Openly discuss any alternatives, i.e. instead of staying at a hotel, we could save $X.XX by camping out, or this TV still works fine, why don't we hold off on this purchase for awhile and watch the sales flyers.

6) Admit fault or problems. If you have a financial problem yourself, setting priorities or sticking to a budget, consider talking to a credit counseling agency. Most communities have these, free of charge. Take your child with you to the appointment, then you can learn together.