Teaching your children about financial responsibility isn’t one of the easiest parts of parenting, but with the right tools and strategies, it can be done.
Financial irresponsibility often leads to future credit and money problems, and it can even prevent your children from developing a savings plan for the later years in life.
These are unique ways you can help your children learn to use money wisely and responsibly.
1. Enlist the help of your children when managing bills. The Pennsylvania Association of Community Bankers suggests allowing your children to handle small aspects of the money flow in your home.
For example, you might consider letting them balance the family checkbook after all major bills have been paid. This helps children get a good look at how finances are affected once expenses have been paid.
2. Set up a matching goal. Depending on how old your children are, they may have already started talking about getting that prized first car once they turn 16.
Abby Hayes of AFCPE notes that one great method for encouraging kids to save their money is to propose a matching goal. This means that however much they save for a particular purchase, you promise to match a certain percentage of their savings.
This is often a great motivator for kids to begin saving and working hard for the things that they want.
3. Define needs and wants. One mistake that many parents often make is merely assuming that their children understand the difference between financial needs and wants.
Children don’t understand that a video game is a financial want, while making a mortgage payment is a financial need. Jacqueline Curtis of Money Crashers explains that it’s your responsibility to distinguish the two.
Start by noting expenses that are required for survival, such as the electric bill, your car payment, or groceries.
Next, list things that aren’t vital to survival, such as going out to eat or toys. Compare the priority levels of expenses to help your children understand the differences between essential and nonessential purchases.
4. Explain how bank accounts and ATMs work. It’s easy for children to underestimate the importance of money when they see their parents swiping their debit/credit cards or taking seemingly free money from an ATM slot.
Jason Alderman, Vice President of Visa Inc. tells parents that it’s important to teach their children that money isn’t free.
Help your children understand that the money you spend from a credit card or receive from an ATM isn’t conjured from thin air. It’s real, and it must be accounted for.
This is also a good time to explain what happens when too much money is withdrawn from an ATM, or too much money is spent using a debit/credit card.
5. Lastly, don’t stop at one piggy bank. You’ve probably already considered getting a piggy bank for your child.
However, Meadows Urquhart from Meadows Urquhart Acree & Cook LLP explains that you can teach your child an even more valuable life lesson by getting them multiple piggy banks.
This gives children a chance to break their money up into spending, savings, or item-specific goal accounts. This provides children with wonderful preparation for real bank accounts.
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