A parent’s job is to teach your children how to be grown-ups. Parents are the ones charged with the task of equipping the next generation with the life skills they’ll need to be successful, independent, productive members of society. To do that, they’ll need to know how to effectively manage their finances, and be able to do it independently of parental supervision.
This is a life lesson that needs to be taught over a period of time, starting at an early age. Children need to know how to spend money without getting themselves into trouble because of their debt load. They also need to know how to effectively save for retirement, and should learn that savings for retirement need to start early. By teaching your children how to strike a balance between these two lessons, you’ll save them the pain of facing financial difficulties later in their lives.
Be the example.
You should be the role model for painless money management and effective retirement planning. You are the example your children should strive to emulate. If you’re lacking in your own understanding of how to manage investments, bone up on the subject by reading investing books and studying retirement planning strategies.
Involve your children in your financial activities.
Bring your children with you when you go to the bank and let them observe what you do there. They can watch you putting money into your savings account while you explain to them what you’re doing and why.
Take them with you to the market and let them see you pricing items, then explain why you make the selections that you do. Let them know what your budget is, then demonstrate how you stay within your budget when making purchases.
Provide them an allowance.
Whether or not you tie the amount of your child’s allowance to their completion of chores is a parenting decision each parent must make. Regardless of which method you choose, there are a few factors that can apply in either scenario.
Start providing an allowance early, as soon as your child is old enough to understand that things we need and want can be purchased with money. Pay them their allowance in actual coins and bills. Let them sort their cash into different containers that you’ve labeled with appropriate budgeting categories.
Children need a budget, too!
Work with your child to make a budget for them to manage their allowance funds. Help them to make short-term and long-term goals for their money, including a savings plan. Even if the amount set aside as savings is small, children need to develop the habit of saving early.
As their amount of savings increases, you can show them how to move those funds into an interest paying savings account, into savings bonds or help them pick a stock to invest their money in. Be sure to let them spend some of their funds on things they want as well, just make sure they work within the confines of their budget.
Habits learned in their early years will carry over into their adult lives. Helping your children build a foundation of sound economic management is one of the best gifts you can give them.
***This is a Guest post***