Teaching your children about money is just as much a part of raising a child as is teaching them how to read. So, as soon as your children begin to handle money, start teaching them how to handle it wisely.
Giving children allowances is a good way to begin teaching them how to save money and budget for the things they want. How much you give them depends in part on what you expect them to buy with it and how much you want them to save.
Some parents expect children to earn their allowance by doing household chores, while others attach no strings to the purse and expect children to pitch in simply because they live in the household. A compromise might be to give children small allowances coupled with opportunities to earn extra money by doing chores that fall outside their normal household responsibilities. When it comes to giving children allowances:
• Set parameters and discuss with your children what they may use the money for and how much should be saved
• Make allowance day a routine, like payday. Give the same amount on the same day each week
• Consider “raises” for children who manage money well
• Piggy banks are a great way to start teaching children to save money, but opening a savings account in a “real” bank introduces them to the concepts of earning interest and the power of compounding.
While children might want to spend all their allowance now, encourage them to divide it up, allowing them to spend some immediately, while insisting they save some toward things they really want but can’t afford right away. Writing down each goal and the amount that must be saved each week toward it will help children learn the difference between short-term and long-term goals. As an incentive, you might want to offer to match whatever children save toward their long-term goals.
Children need guidance when it comes to making good buying decisions so teach them how to compare items by price and quality. In addition, by explaining that you won’t buy them something every time you go to a store, you can lead children into thinking carefully about the purchases they do want to make.
Older children may earn income from part-time jobs after school or on weekends. Particularly if this money supplements any allowance you give them, wages enable children to get a greater taste of financial independence.
With greater financial independence should come greater fiscal responsibility. Older children may have more expenses, and their extra income can be used to cover at least some of those expenses. To ensure that they’ll have enough to make ends meet, help them prepare a budget.