Teaching Your Kids About Money

If you want your kids to learn how to be financially responsible adults, you have to let them handle money from an early age. If you give them an allowance, encourage them to save a portion, but they should have a certain percentage to do with as they wish. They will learn a good lesson if they blow all their money on something frivolous and don't have money left for something they really want.

If your children understand the basic finances involved in running the household, you are more likely to get their cooperation in helping to stick to your budget. If they understand that six percent of the monthly budget is devoted to electricity, they are more apt to turn off the light when they leave a room.

Get a blank checkbook register and give your child a stack of home-made checks. Put a monthly total in the checkbook, and have them write you a check and enter it in the register every time they need cash. Audit the checkbook with them once a month to teach them the importance of managing a checkbook.

One way to begin teaching your kids some basic financial planning is to introduce a three bank system. Each bank serves a purpose for storing money: a spending bank for money that will be spent in the near future; a mid-term savings bank for money to be spent later; and a long term savings bank for larger goals like college. The mid and long term savings banks money can be deposited into an interest earning savings account at a local bank as it accumulates.

While you are planning your weekly trip to the grocery store, let the kids scan the sales circular for good deals on needed items. Get their help clipping coupons. Talk about the concept of a grocery budget and the importance of sticking to the list and avoiding impulse buys.

Get your young child an attractive piggy bank to keep any money they receive from gifts and allowances. As they get older, you can let them make small purchases for you at the store with the understanding that they can keep the change if they put it in their piggy bank. Get in the habit of helping them count their money before you give them their allowance so they can see how their money has grown.

A great opportunity to teach kids about the cost of living is to let them sit with you while you pay the bills. Put the bills in a stack and add them all up. Explain how much is in the checkbook when you start and how much is left after the bills are paid.

There are a number of board games that will help children begin to understand the value of money and simulate how it is used in real life. Some of these are: The Game of Life, Payday, Monopoly, and Monopoly, Jr. Playing these games and handling play money is a perfect opportunity for teaching your children some basic lessons about finances.

If your child has an after school or summer job, have them open an IRA. They can put as much as $4,000 a year into a Roth IRA, and after five years of tax free growth, they can make withdrawals for college without a penalty.

A great opportunity to discuss the value of money is by taking the kids to the grocery store with you. Discuss why you choose one item over another. Explain how much money you save by buying an item on sale, instead of paying full price. Show them how much you save at the register by using coupons. By understanding how you make decisions on what to purchase, your child will begin to have a better understanding of the value of money.

It's important for kids to have a regular source of their own income so they can begin to learn how to manage their money. They will begin to learn the cost of items they want, learn to make choices between what they want, and when they do make a purchase will have more appreciation for the item because it was purchased with their own money.

If you have to make a major purchase, include the kids in your decision making process. Talk about the pros and cons of the purchase, and explain how you go about weighing alternatives. Show them how you go about your research before making your final decision.

Many freshman enter college with no idea how to balance a checkbook, or manage their finances. Many bank websites have "Money Basics" sections that offer information designed to provide high school age kids with resources and strategies for common financial issues. They should learn about credit card usage, budgeting, and how to make wise spending decisions.

If money is tight, kids will probably feel more in control if they can help. They can feel like they are contributing by helping cut expenses, or by getting a part time job to help cover some of their own expenses. It's also better to lower their expectations regarding things like holiday gifts, than to go further in debt pretending the financial situation is normal.

A good site for teaching kids about money, interest, savings, and checking is kidsbank.com. This is a good site for young kids because it has characters, pictures, and easy to understand language. There's even a question board for kids to post questions about money and get answers posted back.