Teaching your child about how to handle and save money can have a significant impact on his financial future. Financial training for children can help them understand the value of money, learn to make knowledgeable purchases, develop good spending and saving habits and stay out of serious debt. Fortunately, there are many methods you can use to begin teaching children of almost any age about managing money.
Shop Together
Getting your child involved in shopping for essential needs, such as groceries and household items can be a great way for him to learn about spending wisely. The Epoch Times' May 17, 2010 article, "Teaching Children About Money," suggests setting a specific spending limit for shopping trips and having your child subtract each purchase amount from the total. This teaches your child how even small individual purchases can really add up. You can also use educational shopping trips to teach children how to compare unit prices and bargain shop to get the best value for the money, notes FamilyEducation.
Allowance
A regular allowance can be a useful financial training tool for children. An allowance can not only teach a child the value of earning money, but also help her develop an understanding of spending limits. Training a child to set spending limits can be especially important to her financial future. "If your grown up child, spends all their money on luxury items (cars, trips, music, etc.) they may find themselves short on money for a house payment, tuition, or an insurance premium. The consequences then will be much more severe," says Utah State University. An allowance helps your child learn that once she spends the allowance, she may have to sacrifice additional spending desires until the next "paycheck" is received.
Learning to Save
There are many ways to encourage your child to save money. Utah State University suggests giving your child his allowance in smaller denominations to encourage setting aside a small amount at the beginning of each week. Setting goals for larger purchases can also teach your child how he can accumulate money by developing a savings plan, notes FamilyEducation. Opening a savings account for your child also provides valuable training in both the importance of saving and the management of an account.
Exercising Judgment
As a parent, it can be difficult to step back and let your child make decisions, or even mistakes with her money. However, this is part of the learning process needed to help her secure her financial future. For example, you shouldn't prevent your child from making purchases with her savings, cautions FamilyEducation, as this can diminish the sense of reward from the lesson of the value of saving. Exercising judgment can also include encouraging your child to weigh the value of various purchases to learn to avoid bad habits, such as the expectation of instant gratification.
Learning About Interest
Whether learning about the added income received from savings or the extra expense of loans, training your child to understand interest is essential to making wise financial choices. If your child has a savings account, you can help him learn to calculate interest income on the account. FamilyEducation even suggests paying your child interest on his personal savings from an allowance to develop an understanding of interest. It is also important that you teach your child how expensive interest can be on loans. This can help prepare your child to be knowledgeable about the risks of using credit cards.
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