Teaching our Children About Money

There is no better time than the present to start teaching children about money. The reality is that if they don't learn it at home, they probably won't learn it anywhere. They may learn how to write a check or balance their account, but that will be the extent of it in schools today. While it would be a dream come true for those of us in the financial community to have a full curriculum of financial instruction begin early on in a child's education, and take them all of the way through high school, that is unfortunately not a reality at this time.

Good financial management is a culture more than anything else. Bringing your children up in a positive and educational environment helps to promote this culture and the lessons will last them a lifetime.

The most important rule in educating children about money is to be consistent. Like anything else, bad habits are hard to break, and in the case of finances, may cause many years of heartache. When you give them a lesson, make sure they understand all of the rules, and stick with them. Children, like adults, need to understand the benefits and consequences of financial management.

One caveat to the education of children is not to involve them in your adult finances. Bringing children into your own financial issues will only serve to add a certain level of stress. Children need to be taught the correct way to handle their finances, and the last thing we want to do is add any apprehension to their already limited view of money.

Start them saving. Children get money as gifts, they find money on the floor, and in some cases they get paid for chores or get an allowance. This is a great opportunity to start teaching them about savings. We suggest that you get your child a jar, a piggy bank and a box. Bring your child with your to get these items and buy something that is rather plain. Along with these three items, get some art supplies and work with your child to decorate and make them unique.

The jar- The jar represents the hard work they children have done to earn the money. This is the money they get to do anything they want with. Using a clear jar will let them see the money that is adding up. Along with the money that goes in there, have them put a small piece of paper in the jar that has whatever they want to use the money for written down on it. If they start to see more paper than money, they'll know they need to work harder.

The piggy bank – The bank represents the money they will be saving. The money they put into the bank will stay there until enough has accumulated to transfer into an actual bank. The fact that the children can't see in the bank enforces the point that they need to leave their savings alone.

The box – The box represents a gift. The money they put into the box is money that they will give away to others. One great thing to do is whenever your child is going to a birthday party or special occasion for one of their friends, have them take some money out of the box and give it as part of their gift. They can even use part of their own money towards purchasing a present, but we feel that giving the gift of cash they have earned themselves gives them a better sense of stewardship.

For every dollar they earn, we suggest the following percentages for splitting among the items listed above:

Jar(Income) – 50%
Bank(Savings) – 35%
Box(Donations) – 15%

Clip coupons. We all get stacks of coupons in the mail on a regular basis. Have your child help you to sort out the ones for items you use in your household. This gives them an understanding of what coupons are. As an added bonus, give them a percentage of each coupon that gets used. This will further enforce the concept of getting the best deal for the money, and give them a benefit when they use the coupons. It will also help to keep you on your toes.

Making a list. When it's time to go shopping, have your child help you with the list. Whether it's groceries, clothes or other items, show them how you decide what you need. Take them to the store with you and have them cross off the items as you get them. It may take a few times, but make sure that you are only getting what's on the list. This is an important lesson for your child. If we go to the store with a list of what we need, we eliminate some of the impulse buys, and getting things that we don't really need. This will also help to enforce the need for taking a few extra moments to make sure the list is complete before you leave the house.

Budgets. Children need to understand budgets. While they still shouldn't become involved in the major finances of the household, and should still be sheltered from any financial issues that may exist at home. This is a good time to talk to them about budgets where it pertains to them. Let them know how much money you are able to spend on their needs, whether it be clothing, toys or anything else. When you go to the store with your list, make sure your budget for that day doesn't cover the list. Have your child help in making the decision on which items not to buy. As you make your lists, have them help you try to figure out what things are going to cost. If they can't make it to the store with you, give them the list and receipt when you get back and have them put the costs from the receipt onto the list. They can use this information on future lists.