Fiscal responsibility is not just for adults. Children in today's society have the ability to shop in stores and online. Retailers and manufactures market to tweens and teens who have allowances and jobs. Even if your child does not have a regular income, she may earn money babysitting or receive money as a birthday present. Many children spend every dollar they receive and ask you for money when the piggy bank is empty. As the University of Delaware explains, your child was not born knowing about money. She needs to learn about money and finances from you.
Step 1
Share openly and honestly with your child about money. As he grows older, sit down with him and share how you budget and spend your monthly income. If you have made mistakes in the past, tell him what you learned from those mistakes. The University of Alabama recommends that you also "share your best money habit with your children" so your children can learn from your successes. Explain the budgeting process and tell him that you expect him to budget his money.
Step 2
Open a savings account for your child. Show her your checkbook and bank statements. Explain how you balance the statement each month by comparing checks you have written and debit purchases you have made with the statement from your bank. As soon as you feel comfortable, give her a debit card linked to her savings account. The card gives her the ability to make purchases at stores but does not allow her to run up a credit card bill. Teaching her when she is young about the difference between credit and debit may help her avoid credit card debt completely.
Step 3
Start giving your child an allowance when he is 6 or 7 years old. According to Kiplinger magazine, most children that age understand the concept of how much things cost and how many things he can buy with his money. Decide in advance how much his allowance will be. A good place to start is to give him a weekly allowance that is half of his age. Do not pay him to do chores, but rather give him the allowance freely and teach him how to budget his money. Encourage him to save part of his weekly allowance. Make a budget chart so he can see where his money is going.
Step 4
Teach her the difference between needs and wants. The University of New Hampshire recommends involving children in choices you make while shopping. When you are in the grocery store, show her an item that you want to buy, like chocolate cake. Explain that you do not need the cake, but you do need the cereal. Use the phrases needs and wants frequently in financial conversations with your child. If she says, "I need a new sweater." Remind her that she does not "need "the sweater, but rather "wants" the sweater.
Tips and Warnings
- Teach your child about interest by giving her a couple of dollars. If she still has the money after two weeks, give her one more dollar. Let your child watch you budget for groceries and household expenses. Allow your child to make poor financial choices on occasion as a learning lesson. If you loan your child money, make them pay it back. Involve your child in decisions about discretionary spending, such as vacations and movies.
- Do not give your child a credit card with an unlimited spending cap. Monitor her online purchase activity.
References
- University of Delaware: Helping Your Child Become a Good Money Manager
- The University of Alabama: Tips for Teaching Kids Sound Money Management Skills
- University of Nebraska-Lincoln: Teaching Children About Money
- Kiplinger: Allowances: When and How Much?
- University of New Hampshire Cooperative Extension: Teaching Kids About Money
