In some families, money is a topic spoken of only by the grown-ups and behind closed doors. But cultivating healthy spending and saving habits early-on is critical in an age of credit cards and looming college debt. Here are some tips for growing a relationship of healthy monetary discussion between parents and children:
Save for a rainy day. The cornerstone of healthy personal finance is also something many people struggle with: saving money. From the time your kids are old enough to desire toys, books, and other entertainment items, you should teach them how to save for the things they want to buy. An allowance is a good tool for this concept. Your child may want a video game that costs $50, but she gets an allowance of only $5 a week. It's her choice: candy or comic books today, or the more expensive item a couple months from now. Almost all personal finance boils down to this essential concept, and it's best to learn from experience.
Work hard for your money. Help your child make the connection early in life that money isn't something freely given, but is earned through work. This isn't to say that you should put your small children to work re-roofing your house. Instead, emphasize that nothing comes free, even if you're tempted to bestow upon your offspring everything that their hearts desire. If you choose to give your kids an allowance, tie it to the successful completion of certain jobs throughout the week. Or you may choose to set a market rate for various tasks.
Understand a budget. A budget is a foreign concept to kids (and, it should be said, to many adults). Younger children, especially, simply won't realize that mommy and daddy have a limited amount of money to spend every month. But learning what a budget is, and why it's a good idea, is one of the central pillars of financial literacy. The best way to teach kids how a budget works is simply to show them. That's not to say that you should open your books up to your children and show them every penny coming in or out (although you may consider sharing some details with teenagers about things like your mortgage payment, car payments, and so on). Instead, just give them a broad sense of how adults have to divide up their money each month.
One easy way to demonstrate this concept is to take a stack of Monopoly money, and tell your child that the stack represents how much money you make every month from work. Then, divide up the bills one at a time to show how much you spend on the house, how much you spend on food, how much you save, how much you give to charitable organizations, and so forth. The denominations aren't important. What's important is showing your children that you have a conscious plan for your money, and that you're on top of the family finances.
Encourage your child to start a budget of her own. Part of his allowance should go to savings, part to charity, and part of it is just for fun. Help your child identify what he truly values, and budget his money accordingly.
Source: FamilyEducation Staff Photo: Darren Deans
