|Instilling proper concepts of money management in your children helps them transition into a more realistic adult financial world, regardless of the financial status of the household.
Basic rules to remember when helping your children develop life skills:
Set Examples – When parents handle finances in a positive way, children learn useful lessons about money management. If parents are heavily in debt and live paycheck-to-paycheck, children do not learn to live within their means. Practicing good money and credit management sets a good example for your children.
Establish Values – Learning financial facts of life involves understanding the basic rules of a productive lifestyle. They must learn to be honest, loyal, kind and compassionate. Not only will these values help them make financial decisions, they will also earn them positive credit references in the future.
Develop Attitudes – Teach sharing, saving, spending and borrowing. Tear down the attitude of entitlement (the gimmes or I deserve it). The entitlement attitudes lead to credit abuse – “I want it, I’ve earned it, so I’ll charge it." Another factor that is always overlooked is the use of cash. When your children see you use plastic – even the debit card – the concept of money is lost. So use cash and have them help you count it out!
Teach Responsibility – Children must learn to choose and, therefore, make mistakes. A child’s allowance is his/hers to spend as they see fit; learning money management when the amounts are small is better than making mistakes later in life when severe financial consequences are a factor. Parents should provide suggestions to guide them (such as proportions for saving, buying and giving).
Involve the Family – Involve your children in the family budget process. Let them know cost and consequence. Help them understand long and short term goals.
Below are age appropriate benchmarks for your children’s financial skills development.
Ages 3 – 5: Prepare them
- Concentrate on attitudes and behavior
- Teach and demonstrate right from wrong
- Let them see you use cash, not plastic (money is real, not magic)
- Discuss choices when shopping
- Use coins to help teach them how to count
- Remember most moral values are developed before age 5
- Show them planned purchases
- Do not show them stressed events like holidays. Make them happy.
Ages 6 – 7: Introduce an allowance
- Determine how much, how often and when
- Teach them how to count money and make change
- Establish share, save and spend proportions
- Teach them to set goals for saving, spending and giving.
- Use a piggy bank or jar for coin savings
- Provide opportunities to use moral concepts to make decisions
Ages 8 – 10: Introduce saving and investing
- Increase responsibility for personal expenses - have them use their own money for movies, etc.
- Adjust allowance for extra needs along with the share, save and spend proportions
- Introduce the concept of taxes
- Develop a simple in-house banking system
- Open a savings account in his/her name and teach about interest
- Assist in setting financial goals and simple budgeting exercises
- Explain and demonstrate instant-gratification and deferred-gratification concepts
Ages 11 - 14: Expand horizons
- Consider changing from allowance to salary concept
- Prepare a complete inventory of income/expenses
- Adjust allowable proportions for sharing, saving and spending
- Involve the child in family budget discussions
- Develop long-range goals such as college or car
- Consider “matching funds” for important goals
- Emphasize the importance of responsible spending
Ages 15 - 18: Prepare them to be on their own
- Adjust salary and expense responsibilities as appropriate
- Review and modify goals and saving/investment plans
- Adjust sharing, saving and spending
- Update budget and tracking system with added expense items
- Open a checking account and teach how to handle a debit card
- Teach the importance of maintaining good credit