The earlier you can teach your children about finances, the better off they will be. You can instill ideas in them that they will carry for the rest of their lives. You can help to create habits that they will still have when they grow older, giving them a bright financial future. Many people who have money problems are not unable to make money; they are just unable to manage it correctly. Even if your child only gets a few dollars a week as an allowance, you can use this money to create a mindset that will translate over to his or her life when larger amounts are being earned. If you do this early, you can head off bad habits.
One of the best ways to approach the situation is to teach your child about saving a percentage of his or her money. For example, some parents will just have the child put away 10% of all that he or she earns in a special account. If the child just gets 10 dollars a month, saving one dollar doesn’t really make a big difference, but it lays the right groundwork. It makes the child think that putting aside this percentage is normal and good, rather than spending everything as quickly as possible. When your child gets a first job, the amount of money saved will be much larger with the increased income.
Long Term Saving
You may also want to consider both short-term and long-term saving options. This shows the instant value of savings since the child can buy better things after just a month or so, and it also demonstrates how putting money away for the future is necessary even if no one yet knows what that money will be used for. This can be the hardest thing to show a child because he or she will not be good at thinking so far in advance. However, setting up a high yield account for savings and using it over years or even decades is crucial since it demonstrates how saving for adult costs – school tuition, for example, or even retirement – is also to be valued.
Freedom to Spend
However, you do not want to go overboard on talking about savings plans and retirement. It is good to get children thinking about these things, but you also need to let them spend and have fun with their money so that they learn to appreciate working, earning paychecks and then using them to buy the things that they want. If you do not let them spend at all, they will probably have no inclination to work since they will not see any immediate benefits. The important thing is finding a balance between spending and saving.
Spending What You Own
It is also a good idea to talk with your child about avoiding debt when possible and only spending what they actually own. Show them that borrowing money has its place – when they buy a house, for instance – but that they should be very careful with things like credit cards and loans. In fact, you may even want to get a credit card for your child and show him or her how to use it responsibly. If you don’t, the child may get a card of his or her own when entering adulthood and have no idea how to use it, seeing it as a gateway to free money and creating all sorts of financial troubles. It is better to teach them how to use the card in the right way than to ignore it completely.
Overall, you should go over all aspects of finances with your child from the first day that you give them an allowance. They are not going to understand the long-term ramifications of a lot of the information at first, but you can still create positive money habits that they will be thankful for one day.