How to Teach Kids About Money Management

Money can be one of the most difficult subjects to cover with your kids, but it’s one of the most important. Many dads find it tough to talk to their kids about money because they don’t have it all figured out yet. Even if you’re not perfect, you still have a responsibility to teach your kids how to manage their money. But how do you accomplish this? How do you get kids to understand ideas like saving, investing, and making frugal decisions? There are many different techniques that may work, and much of it depends upon your child and what tactics they respond to.

The old allowance system
Since seemingly the beginning of time, parents have been giving their kids a small amount of money each week in an effort to teach money management. The allowance system is still useful, but it requires a bit of tweaking for modern parents. Most kids don’t have any responsibilities, so they are free to spend their allowance money on whatever comes along. What this means is that there are no consequences for blowing all of their money, and they understand that a new allowance is coming in just one week. This can often teach kids bad habits and get them into a paycheck to paycheck routine.

A better method is to provide kids with both an allowance and a budget. Start early with the idea that money should be spent in responsible ways. If their weekly allowance is twenty dollars, then you should help them set aside $8 for video game rentals, $4 for sodas, and $5 for mini golf. More importantly, help them set aside $3 in savings. Kids probably won’t respond to the idea of a traditional savings account, so place incentives on the saving. Perhaps they want a new bike or a new set of golf clubs. Help them put aside that $3 to go toward whatever item they would like. This will help instill good habits and it will show them the virtues of saving their money.

The value of money
The problem for most kids is that they just don’t understand the value of money. Kids don’t know what mortgages are all about and they don’t understand what a solid adult salary is. Though you can’t jam it down their throats, you must get into the value of money at some point. Talk to them about how much things cost in real life so that they’ll be more responsible. One way of doing this is to give them some responsibilities with their money. If there are certain expenses, like baseball league fees or new cleats, then it’s best to give them some ownership in that. Provide kids with the money that they will need to pay for these things, just to give them a chance to use the money wisely.

This type of grown up approach is important to start from a young age. Know that your kids will likely fail at some point and they’ll spend some of the money on something completely unnecessary. These instances will serve as excellent teaching points for you as you impart just how valuable money is in the real world. Over time, managing money will become second nature to kids.

Planning for the long term
Many parents find the most difficulty in talking to their kids about the long term. Investments, savings, accounts, IRAs, and things of that nature are typically out of the reach of most kids. Even though these subjects are complicated, you have to give your child some perspective. Use charts and figures to show them how quickly money can grow when it’s saved each month. Set up savings accounts for them and offer incentives for them to put money away. Many parents find that it’s a good idea to match any money that their child saves.

Each child is different, so there is no set method for handling these issues. Still, you must do your best to impart the core values into your child and make them an active participant in money management.