Money Management Principles for Children

If you do not pass along good principles for managing money to your children, then chances are high that unless they marry someone who is excellent in this area, they will fail miserably.  So, in the vein of knowing what to teach your children about money, here are some tips that can help.

Start small.  Your child needs to learn the value of money early in life.  A simple game of placing coins into a piggy bank when they are four or so years of age will help begin the process.  Teach them to share by having multiple banks for all of their siblings so that they can see that money can be shared and accumulated by all.

Teach the basics.  As your child enters school, you should introduce the concepts of saving, spending and giving.  Once they reach the first grade, you can institute an allowance system with which they can be taught to put money into all three of these categories.

Allowance amount.  There is a wide range of discussion about how much to give, but the overriding concept should be to give them only an amount that they can realistically handle.  Some suggest a dollar per year of life.  Others set an arbitrary dollar amount like five or ten dollars to begin.  Once you decide on an amount then begin to help them manage their money.

Show them what is wise and what is unwise in the use of the money.  If they desire to purchase something that costs more than what they have, use the experience to teach them to save up their money in order to be able to make the purchase all with their own money.

Adjust your advice.  As they grow and move through grade school, increase their allowance.  If they happen to want something specific and they clearly cannot afford it, then show them that you are willing to help by putting up some of your money along with theirs in a ‘matching funds’ type of effort.

Eventually, you will want to set up a savings account in order to help them learn to save their money.  Some parents use a matching effort here as well.  If they save so much, be willing to add to it as well.  This shows them the power of accumulating money and the effect that interest has on the balance.

Once they reach their mid-teen years, encourage them to get a part-time job to earn extra money for some of their own expenses that are their choice, such as clothing and the like.  This should not be for necessities, however, like food, etc.  You are required to provide those for them.

Encourage them to begin saving for their first car.  Have them get used to putting money from their part-time job into the savings account for a vehicle.  Let them know that you will help them decide what is best for them to purchase and offer to help, once again as much as you are able.  This is purely a subjective issue as far as amount is concerned.  The principle of seeing most of their savings go towards a car will give them a jolt of reality.

If tough financial times are encountered, do not shield them completely from it.  You might have to cease contributions while things are tight.  This is all part of the learning process.

Talk to them about loans and borrowing money with an especially direct approach about the pitfalls of credit cards and how they can be hurt by them.  Help them understand what a credit score and history is and how it can affect their ability to obtain loans for things like houses and cars.

They need to learn about these things BEFORE they leave for College because once they are there, they will be targeted by on-campus efforts to sign them up for credit cards.  If they know in advance what to watch out for, they are less likely to make a mistake.

Just like a child, the teaching process about money is slow and mirrors their age and maturity level.  Use these tips to be a great teacher and role model.  You will be glad that you did.