Teaching Children About Money

I see this subject discussed quite a bit.  People want to know good ways to teach their children about money.  It doesn’t matter whether they are homeschooled or not.  Responsible parents want to equip their kids to be responsible with their money, so as to set good habits for later on.  Perhaps the parents were not well taught and have been irresponsible in their own lives and want their children to be better. Perhaps others have always been responsible with money but just want to make sure their children learn the same good traits.

I am no expert in this subject, but I do have a few ideas on teaching children about money.

I don’t really like the idea of an allowance.  I prefer for a child to earn money.  It might be something simple like taking the garbage out, mopping the floor, or mowing the lawn.  Of course, the task should be within the ability of the child, depending on his age.  This doesn’t have to be a mandatory chore.  But there should be an income amount paid for each job done correctly and the child should know what the amounts are.

I do like the idea of the parents playing banker.  Offer an interest rate on your child’s savings.  You don’t have to be like the Fed and offer a quarter of a percent.  Make it fairly simple.  If the child saves 10 dollars, then he earns an extra dollar after one year.  Maybe you’ll want to make the reward even bigger, just to get the point across.  This is the beginning of learning compounding interest.  This is an important lesson for every older child to learn.

When it comes to saving and spending, don’t be too stingy on the spending side either.  It should really be the child’s choice, although you are providing incentive with interest payments.  Encourage the child to split his “income” between savings and spending.  Maybe he can spend 75% of whatever he earns, while setting aside 25%.

In some ways, the best way to teach your child to be responsible with money is just to teach him to be responsible in general.  Your habits in life will often reflect other more specific things, like how you handle your money.

To go along with this, it is important to teach your child to be future oriented.  This is perhaps the most important thing.  You want them to have a long-term view of the world.  You don’t always live in the moment.  You defer gratification so that you can have more later on.  This goes along with the idea of saving and compounding interest.

My last piece of advice (for now) is to try to teach your child the relationship between time and money. This can be difficult to do, but you have to show him that time is money.  There is nothing wrong with spending time watching television and playing video games, but he should understand that it is time he can’t use to do “jobs” around the house.  There are opportunity costs to entertainment.  There are trade-offs that must be made.

In conclusion, there is no exact science in teaching children about money.  But you can start with these things and remember to set a good example.  If you are always wanting to buy frivolous things (spontaneous purchases) because there is money burning a hole in your pocket, then you may end up passing this lesson down to your child.  If you show restraint and responsibility, he will be more likely to learn that.