Practical Tips On How To Teach Your Child About Money (#1 of 5)
You expect your child to learn about math, reading and science at school, but what about personal finance? Dealing with money is an important part of their everyday lives. It will affect the choices they have and the decisions they make. Most of us had to learn lessons about money the hard way but it doesn't have to be that way for your child.
Over the next couple of weeks I’m going to post five ways you can teach your child how to be successful with money. I hope they will serve as practical guides and inspiration.
#1 Pay them an allowance
A good way to start teaching your child about money is with a weekly allowance as this lets them test the principles of budgeting, saving, impulse control and delayed gratification with their own money.
How much?
This depends on your financial means and what you expect them to be financially responsible for. An allowance should be treated like a pay cheque rather than a gift – something that is earned. Agree what chores they are responsible for, then if they don’t do the chore, they don’t get paid. Cause and effect. It should also be clear to your child what they’re expected to buy with their allowance and what you will still pay for.
Pay it in cash
It’s a good idea to pay the allowance in cash. That way it’s real - they see it growing and diminishing. Get them to allocate it between three containers labeled “Spend”, “Save” and “Give”. This is not a new idea but it’s a valuable one. It’s up to them which containers they split it between because they earned it, it’s their money. They then get to experience the consequences of their decisions.
Don’t come to their rescue
Once they’ve used up their allowance it’s important to not give into requests for more money. If you do this, they may develop a habit of relying on additional funding sources when they want something they cannot afford. This can lead them into personal debt and high-interest credit cards as adults.
The idea here is to allow them to experiment with money of their own by allowing them to make their own financial decisions and to see the consequences of those decisions.
We talk about ways kids can earn money and spending within their means in our MoneyTime program for 10-14 year olds: www.moneytimekids.com/for-parents
Keep an eye out for # 2 in this series shortly.
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