Steps to Help Your Kids Become Effective Money Managers
The way we spend money is based on our family value systems. Our parents first influence our attitudes towards money. With that in mind, it is important for parents to think about how they are going to teach their children to be responsible consumers and money-handlers. Children need to learn about the value and function of money, about managing money, budgeting, setting priorities.
How can parents teach these uses of money? Here are some suggestions:
- Be a good role model. Your spoken and unspoken attitudes about money are learned by your children. Children observe the way that you handle money.
- Communicate and include the kids in family budget discussions. If your children don’t know what is going on, there is a sense of endless money and no consequences of over-spending. Children respond better than we expect sometimes. They become aware of what the family can afford and tailor their demands accordingly.
- Help your children to become informed consumers. If you go shopping with your children and they observe you reading labels and comparing prices, your children will remember this strategy, and will probably do the same thing the next time they go shopping.
- Teach your children to set financial priorities. It’s a good idea to give children choices when spending money on them. Here are some different things we can do. We can either go to dinner and bowling or to the Glow in the dark mini-golf, but we can’t afford to do all three. They learn the value of money, that there is a limit and they have to set priorities when spending their money.
- Share money management. Children should see both parents involved in the overall plan of managing the family finances. They should learn that men and women, whether working in or outside of the home, take an active role in financial goal setting.
- Don’t attach emotional value to money. First of all, do not use money as a reward or punishment or to “buy” your children’s affection. Good behaviour and assuming family responsibilities should not be linked to money. Also, in some situations, such as a family in which the parents are divorced, parents who see the children less often, may buy the children outrageous gifts. Kids catch on quickly that they are being bought and will take these feelings into adulthood.
- Use an allowance as a learning tool. Allowances are not necessary, but can be a valuable learning tool if parents have enough money in their overall budget plan. However, children shouldn’t be paid to make beds. They should be taught that chores are just a contribution to the family.
- Open a bank account. It’s a good idea to open an account anytime that money is accumulated. It is a good way to teach children to save and a good way for them to save for bigger purchases.
- Encourage older children to have a personal plan (the budget word scares people). This plan should include any income or savings and expenses such as entertainment, clothes, transportation, lessons, rainy day purchases. They can see where their money goes and how to achieve their financial goals.
- Pre-plan and communicate regarding post secondary education. Parents should pre-plan what they are going to do in terms of their children’s education and involve the children in this process. Parental contribution to their children’s education will vary depending on each family’s financial situation, beliefs and goals. As post secondary education is costly, families should begin thinking about and establishing a savings plan while the children are still young. This gives both parents and their children the time and direction to achieve their education goals.
- Teach youth about the wise use of credit cards. There is nothing wrong with credit cards – it is the management of them that can be a concern. Young people have to know that money is a commodity – whether credit cards, a loan or cash – it is all still money. If a young person is away at University, it can be a security to have a credit card in case of an emergency. But stress that they need to keep track of their credit card purchases and that they need to pay the full amount owing before the due date.
Teaching children about money management will help pave the way for their future. When they leave home and enter the real world of personal finance, their basic understanding and value of money learned in the home will be the fundamental attitudes carried into their new and independent lives.