My wife and I are planning on eventually starting a family of our own and we both agree it is important that our children are financially responsible.
I recently read a book called ‘Raising Financially Confident Kids’ by Mary Hunt. In case you haven’t read it, here are some tips on how to raise financially-responsible kids.
Distinguish Between Needs & Wants
Kids are exposed to many advertisements promising them happiness if they buy a certain product. We are all exposed to these ads but most children don’t haven’t the experience to see that buying material items wont lead to happiness.
Teach your children the difference between a want and a need at a young age and could be as simple as comparing their meal (a need) to a toy that they want (a want). Children need to understand the difference to eventually make financially-responsible decisions later in life.
Get Rid of the ‘Entitlement Attitude’
We are all exposed to advertisements with underlying messages that we are entitled to specific things: the latest fashion designs, a new kitchen cookware set, the newest vehicles and trips to exotic locations.
The best way to eliminate this sense of entitlement within your children is to set an example:
- Live below your means by spending less than what you can afford.
- Live a frugal lifestyle by consuming less.
- Discover the real needs of children – sometimes it’s not the latest electronic that they want, perhaps all they need is some quality family time and a feeling of confidence.
- Become a giving family by donating your time (volunteering) and money to worthy causes.
- Limit time spent at shopping malls and watching TV – these only fuel the attitudes within children that they are entitled to specific things.
Developing Financial Intelligence
Children need to know one of the golden rules of personal finance: it doesn’t matter how much money you bring in, it’s what you do with your money that matters most.
Whether it’s a $20 monthly allowance or a hefty executive salary, money will not last if it is not used properly.
Related: How I Multiply My Savings
Give your children an allowance and talk to them about what it means to earn money and how it should be spent. Show them that through hard work (doing chores around the house, shoveling snow, mowing lawns or setting up a lemonade stand) they can earn money and it is up to them to manage it responsibly.
If your children are given a monthly allowance, talk to them about how it will be spent. Do they really want to spend their entire monthly allowance on one toy?
Tips for Specific Age Groups
The preschool years
- Let them see you using money as an ordinary part of life
- Let them see both parents using money responsibly
- Use coins to help your child learn how to count and explain what the coins are used for
- Avoid using money to bribe or manipulate. Children pick up on this quickly and it will have a negative effect on their views of money
- Give them a fixed weekly allowance given on a specific day that is predictable and easy to understand. Consider linking the allowance to the responsibilities the child has around the house
- Set an example on how to budget by setting money aside in jars – giving, long term savings, short term savings and spending. Allow them to see how the money is broken down into each group and get them involved
- Avoid loans to children. At this age they don’t fully understand the ramifications of loans and are only focused on the short term. If there is something they would really like to buy but cant afford it, teach them to save their money or help them to consider earning extra income through a paper route or lemonade stand
- Consider opening a bank account for your children and show them how bank accounts work. Be sure to open an account that has a small minimum balance and doesn’t charge any fees. Also, have your child keep a written record of what is spent so they know where their money went
- Discuss credit with your child. Explain to them how credit is very easy to get and the downfalls/dangers of using it foolishly.
Conclusion: From what I’ve read the best way to raise financially-responsible kids is to set an example that they can follow. Show them how money is used and how bank accounts work. Explain the dangers of misusing credit. Answer any questions they have openly and honestly.
Do you have any tips on raising financially-responsible children?