Every parent wants their child to be responsible when it comes to money. The problem is that many parents wait until it is too late to begin teaching their children about money and how to be responsible with it. If you are serious about wanting to teach your child about money and the different responsibilities that go along with it, you need to start teaching your child about money and its value as soon as they are old enough to understand the concept, which is usually between four and five years old. The younger they are when you start to teach them, the longer you have to work with them. And the longer you have to work with them the more you can teach them.
Here are some tips to follow to help your child be responsible with their money.
One of the most important things that you can do to help your child be responsible with money is to establish their own “pay day”. Paying your children an allowance on the same day every week enables them to plan how and when they are going to spend their money and to learn from the consequences. But you should remind your children that once allowance money is spent, there won’t be any more available until the following pay day. A Tuesday purchase could mean no movie on Saturday.
Another thing that you can do is to encourage your children to divide their income into different parts, such as spending, and short- and long-term savings. By choosing the amounts that they want to set aside for these categories, your children will learn personal finance discipline. Keep the allocated funds separate to ensure that savings are not spent: long-term savings in an investment fund; short-term savings in a bank or fund; and spending in a jar, piggy bank or wallet.
Open up a savings account for each of your children. Go over each bank statement with them to demonstrate how compound interest works. And take them to the bank to show them how the different transactions work; allow them to make their own deposits and withdrawals, but always under your supervision. Talk to your children about the various transactions and what they do, as well as the various types of bank accounts and slips that you fill out. The more your child understands about the banking process the better off they will be in the future.
You can also teach your children about paying bills by using play money. In this lesson you should give your child a mock paycheck and from that paycheck you should take out taxes to show where some of the money is going to go and then allow them to write out a list of bills that need to get paid out of the monthly paycheck. This will give them a better idea about paying bills and what is most important: bills or luxuries? In fact, they will get a more realistic picture of what little money is left over for luxuries.
If you have younger children, you should agree to match funds with them, meaning for whatever they save for a certain toy you will match what they have saved. This way they can still reach the goals they are setting for themselves without suffering huge disappointments. But as your children get older you should begin talking to them about setting up a retirement account and agree to match what they save each year as long as they save whatever amount they have promised to save.