Teaching Children Financial Responsibility

Raising children in a money wise environment involves parents teaching their child the basic concepts involved in saving and spending and the fiscal responsibility that comes with it. Parents also need to set an example for children by providing a stable financial home enviornment.

Did you know that many children think there is a "Money Store" where we get more money if we run out? That is what my 4 year old told me today and I am finding that many children his age also have that belief regardless of the money wise environment that their parents think they are raising them in.

There are many steps that parents can take in teaching their child the basic concepts involved in saving and spending and the fiscal responsibility that comes with it. All of the concepts involve budgeting as well as setting an example for children by providing a stable financial home enviornment.

ALLOWANCE & BUDGET

If your child is old enough to say, "Buy me this" and perform small household tasks then they are old enough to have an allowance. Many experts suggest giving them one-dollar equivalent to their age. However if you have a large family and a low-income household that method could break your budget pretty fast! The important thing is that you spend time teaching them about long-term savings. Let them open a savings account and give children the option of donating 10% or less to charity. In essence...help them set up a budget!

DELAYED GRATIFICATION

It is a natural behavior for young children to beg for items they see in the store and dealing with the "Gimmie" attitude is part of being a parent. But how a parent reacts to a child's demands can have very long lasting effects on how your child will look at money. If parent's give-in to there child begging for items then it teaches them to beg. A very simple concept but everyday you can find parents and grandparents at the grocery store that should get failing grades in this area. A constant pattern of instant gratification is what is leading Americans into their obsession with credit cards.

Start teaching principals of delayed gratification early on by helping your child make a wish list and perhaps offering to match funds when they reach a certain amount. Adriane Berg co-authored the book "The Totally Awesome Money Book For Kids" and suggested that you can even lend your older child money to reach their goals. She suggests to, "Charge a small interest to illustrate the downside of borrowing".

YOUR SPENDING ENVIRONMENT

The facts are that their environment influences our children and that includes how they look at money. If children see their parents checking the price tag on items prior to purchase or putting something back because of inflated prices it will have a positive financial effect on their attitudes. Comparison-shopping has been taught. Each time parents pull out their credit card; take advantage of the teaching moment to explain how interest, billing and spending limits work. At the ATM make sure young children know that the bank was taking care of the money you got for your allowance.

Parents can also be having a negative impact on their children by fighting over money. Steven Pybrum, the author of "Money and Marriage: Making it work together" believes that as many as 76% of divorces occur because couples fight over how to spend their money.

Communicating about money management is a difficult thing for many couples and the attitude you present can greatly influence your watching children. Couples should ask themselves 5 questions to determine if money issues could be hurting their marriage and adversely affecting their children.

1) Do you avoid discussing finances because it results in a heated argument or fight?

2) Do you keep a separate checkbook so you can hide your purchases or lie about how much you spent?

3) Do you justify expenses by purchasing something for yourself because your spouse overspent last week?

4) Do you avoid balancing your checkbook and really have no idea how much money you have?

5) Does your partner handle all the finances to the point that you are in the dark about your financial situation?

Couples can avoid contention regarding money by budgeting their money together. They can also decide on a set amount of money that if spent needs to be discussed with the other partner. Some couples solve this issue by giving each other an allowance of spending money that is his or hers to spend as they wish. This works especially well when the spouse that primarily performs the household and childcare duties can receive a small paycheck for the work she or he does. Both spouses should also have equal access to all financial records and feel equally in control simply by knowing the financial information is available for review at all times.

The best way for parents to teach their children to spend money responsibly is by example! Your children will know when you are in-debt even if only by the stress it can create in the family. You can include your children in the decision making process of creating a budget, setting goals for large purchases and so-called big-ticket items. Kids can actively help in reducing living expenses and will be more willing to do so if they understand the basics of your family financial situation.

ACTIVITIES FOR SMALL CHILDREN

1) As a young child my father and mother organized a family activity night I will always remember. He cashed his paycheck in small bills and laid it out on the living room floor. We counted out the money to pay each bill, and put the money into envelopes for each budgeted category.

2) Give each child $2 and assign them a portion of dinner. Assign a drink, main course, salad, dessert, etc. Then go to the store. Buy, prepare and serve dinner as a family.

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