10 Tips for Teaching Children Financial Responsibility
- Establish the Difference Between “Need” and “Want” – Modern marketing directed at kids vigorously blurs the line between needs and wants, making it difficult for children to understand the concept. One of the first steps to successfully teaching children how to be financially responsible is to help them understand that difference, and to see through the marketing ploys that are directed at them.
- Give Older Kids a Debit Card, But Monitor Their Use – Opening a bank account for your child with a debit card for personal use can help them learn to spend wisely and keep track of his account’s balance, especially if you sign up for text and email alerts to keep you informed of his available funds.
- Institute a Chore-Based Allowance, With Extra Earning Opportunities – Rather than giving children a weekly allowance with absolutely no ties to work or earning, let them know that their allowance, like a paycheck, is contingent upon them completing the tasks that are assigned to them. In addition to a regular set of chores, provide opportunities for kids to earn extra money by performing additional chores, like washing your car.
- Create a Savings Plan – Allow kids to choose one extravagant or expensive item that they want, and help them start saving their own money for it. In addition to helping them appreciate the item more than they would if it were simply given to them, the process of saving also helps them learn to budget for things that they want but can’t afford outright.
- Start Building Credit History Early – Using a secured credit card can help teens establish a credit history. Helping teenagers understand what a credit rating is and how it affects their lives is one of the most effective ways of preventing a credit-card spending spree in college.
- Let Kids Help Plan a Budgeted Activity – Elementary-aged kids can benefit from being allowed to help with the planning of a budgeted activity. Presenting them with the amount of available money, the potential expenses and any other factors while allowing them to make decisions about how every dollar should be spent is a valuable lesson learned in a controlled environment, and one that is much better than learning about budgeting by going bankrupt after college!
- Institute a Policy of Fines – When kids are expected to pay a fine for misbehavior or rule-breaking, they’re absorbing the concept of paying for mistakes. Fine-based disciplinary policies help kids connect willful disobedience with financial loss, just as adults pay fines for breaking the law or lose money through making poor choices.
- Talk About Finances – Too many parents treat the family finances like a closely-guarded secret, keeping kids in the dark. However, when talks about money are as uncomfortable as those about the birds and bees, kids are missing opportunities to learn the basic tenets of financial responsibility.
- Let Them Make Mistakes – One of the most powerful teaching tools in a parent’s financial-responsibility arsenal is the willingness to let children make financial mistakes while they’re still young and those mistakes are on a smaller, more manageable scale. After kids absorb the full impact of their poor choices, parents can swoop in and offer assistance, along with a frank discussion about how and where they went wrong.
- Lead By Example – “Do as I say, not as I do” isn’t a valid parenting tactic in any situation, but it’s especially counterproductive when you’re trying to teach kids about money and financial accountability. Making large, extravagant purchases without giving them the proper consideration and spending indiscriminately sends kids the message that they can do the same thing, regardless of what you’re trying to teach them through elaborate lessons.
By working with your children from a young age and helping them to learn about money management and wise spending, you’re helping to create a financially independent adult who will be able to live on their own and manage their own finances without requiring major bailouts from you. The best gift you can give your children is the ability to spend wisely; it will serve them, and you, very well as they become adults.