Even though it seems like money and financial topics are discussed everywhere, these are not concepts your children will learn automatically. Some of the most valuable lessons you can teach your children involve basic money concepts, such as the value of saving and investing. Some strategies you can use to help teach these concepts include:
- Impart money concepts along with the children's allowance. You must decide whether to tie your children's allowance to the performance of chores. Some people feel that doing so instills the concept of working for pay, while others feel chores should be performed without pay as part of children's family responsibilities. When setting the allowance, make sure your children understand what expenses must be paid with it. The allowance should increase as your children grow older and should be large enough so children have money left over to make their own purchasing decisions.
- Provide opportunities to earn extra money. Offer to pay your children for additional chores around the house, so they learn the connection between effort and pay. If your children want part-time jobs, first make sure they understand that their primary responsibility is to do well in school.
- Allow your children to make their own financial decisions. You may not agree with the choices your children make, but it is important for them to learn from their mistakes. That doesn't mean you can't discuss options with them, but the financial decisions should be theirs.
- Encourage your child to save money. Saving for tomorrow rather than spending today is a difficult concept for both adults and children. Thus, you may need to offer incentives to encourage saving. You may require your children to set aside a certain percentage of their allowance for long-term goals. Or you can match your children's savings, perhaps contributing 50 cents or a dollar for every dollar your children save.
- Explain the basics of investing. At an early age, open a bank account for your children, explaining concepts like saving and compound interest. Around age eight or so, explain how businesses operate and how investors buy and sell stocks. As their interest grows, help them purchase stocks with their savings. Since minors can't own stocks, you will need to purchase the stock as custodian for your children. Teach your children how to research a stock, follow its price, review its annual report, and decide when to sell it. Exposing your children to these concepts at a young age will hopefully make them comfortable with investing when they become adults.
- Encourage your children to take finance courses. Many high schools and colleges offer courses that teach stock basics and personal finance. Encourage your children to take at least one of these courses.
- Be conscious of the money messages you send to your children. Your children watch your actions closely, so how you treat money will be a significant influence on their views. If you make large purchases only after careful research and price comparisons, your children will learn to be careful before making a purchase. If you use your credit cards cautiously and explain how to select a card, what items to charge, and how to pay off the balance every month, your children will learn not to abuse credit cards.