Study Tips

How To Teach Children To Make Smart Money Choices

Learning about how To Teach Children To Make Smart Money Choices money is a hands-on experience. To really understand how to make good choices, children have to have some money of their own. An allowance is usually the first step. The age of 12 would be a good time to establish a regular allowance for your child. If he/she’s already getting an allowance, you might want to evaluate whether it’s enough—and then insist he/she use it to cover certain things, including some of the “extras.”  You may be surprised how quickly they learn to manage their own spending.

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Teaching children how to make good money choices is one of the most important things a parent can do.

And whether you realize it or not, children learn from your example. Often children rate their parents as a key resource for teaching them about money, spending and investing—and they’re eager to learn. So while your daughter may be used to asking you for money, she might actually be quite ready to take on some more financial responsibility.

Create a budget together

First sit down together and list the things you expect your child’s allowance to cover—lunches, toys, books, maybe certain clothes. This would be the perfect time to suggest that savings also be listed as a budget item. Now add up their current allowance for the month plus any extra money they might get from gifts or a job. Have them do the maths. Are they coming up short? If it’s time for a raise, decide together on a reasonable amount that will cover their expenses—and make sure them understands that it’s up to them to prioritize their spending to make it work.

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For an added lesson in budgeting, let your child plan a family trip or outing. Give them a set amount to work with and have them research and estimate expenses. Help them be creative in making choices that fit within the budget.

Set up a real savings goal

Learning to save is one of the most important money management lessons. And there’s nothing like a goal to bring it to life. So while you’re talking about budgeting, also have your child write down a real goal—say a special evening out or a new phone. Having something concrete to save for will make it easier for them to set aside a certain amount from their monthly “income.” To encourage them, you could offer to match a portion of their savings.

As a further inducement, help them open a savings account at your local bank and talk about how interest works. See if your bank manager has a little time to talk to your child and perhaps give them an online banking demonstration. Following the growth of their savings online could be a real motivator.

There are also plenty of online savings calculators that can help your child figure out how long it will take to reach their goal. That’s a great lesson in itself!

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Let mistakes teach the hard lessons

It may be a cliché to say we learn from our mistakes, but when it comes to spending, they’re a pretty effective lesson—as long as we’re allowed to fail. So as hard as it may be at times, don’t always come to the rescue when your child finds he/she has overspent. Instead, help the identify “spending leaks” and talk about ways to fix them. Suggest an online monthly budget planner to help them see clearly where their money is going.

Don’t hide your own money concerns

Many parents avoid talking to the children about family finances, but if you want to give them a sense of financial reality, you’ve got to show them the money. Without burdening your child with details, share with them how you budget, what you save (especially for their education), and the choices that are necessary to make ends meet. Knowing that you also have to prioritize may be an eye-opener.

At 12, your child is on the cusp of even bigger financial decisions. It won’t be long before they can consider things like a part-time job and a car. Use these milestones as opportunities to discuss credit and debt, saving for retirement, even investing. Far from boring, children may find these ideas exciting as they anticipate and experience greater financial independence.

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Sourced from Schwab Moneywise