Teaching Kids About Money
For many parents talking to their kids about money is nearly as difficult as explaining the facts of life. In fact, teaching kids about money is such a difficult subject that many parents never get around to teaching this important life lesson. This leaves young adults ill prepared for making the important decisions that come with adult life, and the burgeoning credit card debt and bankruptcy filings among the young are proof that additional financial education is needed.
One of the most important things parents can do to teach their kids about the value of money is to let their children in on the household finances. Money, both where it comes from and where it goes, is often a mystery to children; demystifying the subject will go a long way.
With older children, it may be a good idea to let them sit with you as you pay the monthly bills. Allow them to see each bill, including the heating bill, the water bill, the cable bill, etc. Giving your children an insight into how much it takes to pay basic expenses will give them a new appreciation of money.
Another great way to teach children the value of money is to open a savings account in their name, and make contributions to that account for special occasions like birthdays, Christmas, etc. Allowing other relatives to contribute to this savings account is a great idea as well.
Nothing builds fiscal discipline in children quite as effectively as giving them a personal stake in that fiscal discipline. Giving the child the choice of blowing the money on a frivolous item and having no money left for the future, or saving the money for a big purchase, is a great way to teach them the value of money. A savings account is also a great way to teach children about the power of compound interest, and it is important to go over each bank statement and show the child how their money has grown.
Many parents go a step further and require that their children contribute a portion of every monetary gift to their savings, and this is a great way to build the fiscal discipline that child will need as an adult. Getting a child used to regular saving will be a big help when it comes time to decide whether to contribute to a 401(k) or other pension plan.
In fact, many parents have adopted the employer match concept of the 401(k) to encourage their children to save. Offering to match the child’s savings contributions, up to a certain percentage, is a great way to teach savings. For instance, if you give your son or daughter a $20 weekly allowance, why not offer a dollar for dollar match on the first 5% contributed to savings. This strategy will only cost you $1 a week, but it will provide your son or daughter with a life lesson he or she will never forget.