Teaching Children Financial Responsibility | Part 1
Raising financially responsible children in today's world comes with challenges that didn't exist for previous generations of parents. Children are constantly being marketed to through Disney Channel shows, iPad games and even the toys they play with. Most children don't understand the concept of spending, earning or saving money because their basic needs and desires are met and parents avoid the topic of money in order to shield them from seemingly adult concepts at a young age.
Financial awareness and lessons involving money can be useful for more than just college saving. It can also teach your child to better handle delayed gratification, which is proven to help with higher grades, higher incomes, more successful marriages and even healthier lifestyles according to Stanford researcher Walter Mischel.
So where do you start? Tackling the topic of finances is difficult even for adults, but starting young with small lessons can make a big difference. Here are some of our tips for instilling healthy financial habits in your kids.
Include your kids in family financial discussions. There is no need to discuss your salary with your kids but it's smart to start early with understanding how much things cost and how to budget for regular household purchases. For young kids, you can include them in your weekly grocery shopping. If they never know how much everyday things cost and how to conceptualize it, then they will never understand the value of it. Starting with something as simple as granola bars may seem trivial but it will make an impact. Older kids could be included in on discussions about their clothing budgets, holiday spending and even things like the cost of the family vehicle and what owning one includes, like insurance.
Come up with an allowance policy, and stick to it. Every family does this differently, and the decision will ultimately come down to what your family values are. Some parents feel that giving your children a small allowance is a way to teach them how to handle real money that they earn and manage. Whether or not you attach that money to household chores or extra work that requires their participation is your choice. Once you have decided on a policy, stick to it for at least a year so that they can really see the full benefits and drawbacks of money management.
Teach them how to save. This circles back to the idea of delayed gratification. Have them take a percentage of their earnings and separate it into a savings account with a specific goal attached to it. As an adult, you know that spending every penny you earn would result in a financial disaster so it's important to teach them that not all of their money can be immediately spent without thought.
Help them practice restraint. As for the rest of their money, set parameters for what they can spend on. Some families have their kids create a "want list." If they see something that they want, have them put it on the list and wait a week or two. If they still want the item and have the money to pay for it, then they can purchase it. This will help cut back on impulse decisions and buyers remorse, which most of us know all too well.
Encourage their entrepreneurial spirit. It's important to show children that they will have to work in order to earn money and make a better life. Depending on your family values and allowance policy, this could be taught in the form of a job board with things besides their regular chores. These chores could include cleaning up after pets, vacuuming, mowing or washing the family car. They would earn extra money if they complete them, but they are not required to. They are purely optional and will encourage children to work harder if they want something. Keep in mind that all kids have different personalities and some may not take the opportunity because they simply don't want to, others may be driven to do every chore they can. Be patient.
Ultimately, it comes down to communication. Share your family values and talk about money without fear or awkwardness. If you make it a regular topic at your house then the lessons you're teaching will sink in over time.
How does your family handle allowances? Do you discuss finances with your kids? Tell us in the forum! We would love to hear from you.