Teach Your Children Early to be Smart About Finances

 I have a special guest writer this week, Debbie on Financials and your children!

Ask any person who has struggled with credit problems what they wish they had done differently about their finances, and chances are that many of them would say they should have learned more about money when they were young.  Unfortunately, many parents do not teach their children anything about smart money management, and these children often grow up with no understanding about how to save money, how a credit card works or even what everyday items cost.  Without such basic knowledge, many young adults find themselves over their heads in debt, even if they have a good job. 

A little bit of financial education early on can make a big difference in a child’s life later on.  Make these steps a regular part of your daily life and your children will soon learn enough about money to make sound financial decisions in the future.

1.         Give your child an allowance.

Whether you tie your child’s allowance to chores or give them a set amount each week no matter what they do, an allowance is a good way to start making children responsible for their money.  Set ground rules about how the money may be spent and then stick to them.  For example, maybe allowance is to be used for “extras” such as trips to the movies with friends or some toy they want but do not need.  Do not supplement the cash you give your child if the allowance runs out and they will learn to think about their purchases ahead of time and realize that wanting something is very different than needing it.

2.         Open a savings account.

Teach your children how to save for special big purchases by opening a savings account for them; many banks have programs for young people.  If your child has a job, suggest that a certain percentage of their earnings, plus birthday and other monetary gifts be deposited in the bank.  Your child will get satisfaction from the effort of saving for a big purchase and also will gain an understanding about how difficult it is to save.  He or she will also see their money grow through the accumulation of interest.

3.         Talk about credit cards.

Avoid credit troubles later by teaching your children about credit cards now.  If possible, stress the importance of paying off your balance each month and explain how high interest rates could end up costing them hundreds or even thousands of extra dollars.  Warn them about attractive-looking offers of credit that switch to much higher rates quickly.  For older children you can even lend them money and then charge them interest until they pay it back so that they learn how quickly interest adds up when they borrow money.

4.         Give money away.

A good lesson about finances is not complete without a discussion of charity.  Encourage your children to donate a portion of any money they earn (and even some of their allowance) to a charitable cause of their choice.  This will help them understand that not everyone can afford the things they can buy and also help them value the money they earn.

Debbie Dragon is a financial writer for MyBankTracker.com, a site that helps consumers compare savings accounts, CD rates, and home equity loans to make informed banking decisions and save money.