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Children are a wonderful addition to your life and require a great deal of attention if you are going to provide them with your values. As parents, you only have a period of 18 years to teach them lessons that will benefit them the rest of their lives.
In reality, you have about 14 years to educate them about money and the financial world since children below four years of age do not really understand these concepts. To help children understand the value they bring to the family, it is helpful to have them become contributing members in daily family life.
You can achieve this by having a child start by performing simple tasks that benefit the child and the family. Children start school in most cases at age four and from that point on, they are influenced by other children with whom they come in contact.
Once you start giving them a small allowance at around age five or six, let them know they can make extra money by doing some additional chores around the house. Put a price tag on the different chores.
Encourage your children to organize their money in three jars that you provide. The jars should be labeled: Spend, Save (Later) and Gift (Never.) You can start with nickels and times and quarters.
Each time your child receives money for completing a task, take 20% and put it in the bank account. Then, another 20% of their pay is set aside for future items. Explain that you are setting up the “Spend It Now, Spend It Later, Spend It Never” system which will become an important part of their financial education.
Also, take them to a physical bank, start a joint savings account with them and explain to them how it and interest works. Explain to them why they should deposit a percentage of every dollar they earn in the bank (“pay yourself first”). Most children are fascinated to go into a bank, especially if it is a large, impressive building.
Before you go food shopping with your children, make a list of what you are going to purchase. Talk to them about buying items the family likes that may be on sale so that they can understand the benefits of saving money. Also discuss not purchasing an item because it is not on sale.
When you take them shopping suggest they bring some of their money with them in case they want to purchase something. If they want to spend it all on one item, explain they may not have any money left for ice cream later. You are beginning to teach them about the all-important concept of budgeting. If they insist they want the item, let them purchase it. When it is time for ice cream remind them that they have no money left and will have to wait for the next shopping trip when they have earned more money and will have money to spend.
As children get older, you may want to encourage them to purchase a share of stock in their favorite companies such as Apple, Google and McDonald’s. This is an opportunity to start to teach them about investing.
Your child may want to purchase an app for their phones, a game or an item of clothing. Explain to them the benefit of not buying all of these items at one time and the importance of saving some money for later.
By the time they are in high school, their financial needs have increased and a larger allowance is usually in order. It is important for them to not have access to a credit card, but rather to use currency. When credit cards are used, the amount of money spent is typically more than double. If you do provide a credit card or debit card, make sure it has a low dollar limit.
It is also important to teach your child about the benefits charities provide to the less fortunate in our society and the importance of contributing to charities. Money from the “Spend it Never” jar can be taken out for this purpose.
If we educate our children early about money, they can develop financial habits which will serve them a lifetime.
Nancy J. Hite is a CFP, Fiduciary and author. For more information, visit www.thestrategicwealthadvisor.com
