Often parents think that financial education is a one-step process that can be taught in a short period of time. This is not the case. Helping a child establish good money habits is a daily process. As a parent, you should take the time to talk about money as often as possible in order to help your child become comfortable with handling and processing money throughout his life.
Adults often delay taking financial control of their lives because of the mystique and fear surrounding money. For them, putting together a financial plan and sticking to it seems an impossible task so they abandon financial management all together. If they would have grown up in a family environment where money was demystified, they would not harbor these fearful feelings about financial control.
You want your child to be comfortable talking about money, setting goals with money, and managing their money. In order to do this, you need to teach your child that money is valuable.
*A recent Nuveen Kid$ense Money Survey showed that Over 58% of kids 12-17 wouldn’t bother to bend down and pick up money off the street unless it was a dollar or over.
This statistic points out the fact that children don’t view money as valuable. Why is this? As a parent you can influence your child’s view of money by the way you act and the information you give them. Every time you see change when walking on the street with your child, you can stop to pick it up. If it is a penny, you can throw in a quote from the past, such as, “A penny saved is a penny earned.” Explain to your child what the saying means.
Talk about the buying process when you are out shopping with your child. Explain to him why you decided to shop at the discount bulk outlet store, such as Costco, instead of the neighborhood grocery store. Comparison shop with him and show how the same item will cost more at one store versus another.
One of the most important daily lessons to remember in money management is to “pay yourself first”. This means to set aside a portion of your income for future goals. A good rule of thumb is to set aside 10% of all money they obtain. You might demonstrate an example for your child. Show him how you put aside 10% of your money for long-term goals. A great way for an adult to do this is through a 401K program and/or IRA.
Depending on the age of your child, help him set up a money system in the house where he can actually see his money grow. The “Piggy Bank System” recommended by several experts is an excellent way to get started and provid a powerful money lesson.
- Set up a piggy bank shelf with 4 clear piggy banks (or any transparent containers).
- Label each piggy bank with the purpose of the money inside it.
Possible names could include:
Today, Tomorrow, Future, Charity or
Candy, doll, bicycle, charity.
- Create a savings plan: Decide what percentage of your child’s income (obtained through allowance, gifts, odd jobs) should be placed in each piggy bank. Example: Today – 50%, Tomorrow – 25%, Future – 15%, Charity – 10%.
- When a child receives money divide it appropriately and place in each jar.
- Consider matching everything your child saves in the Future piggy bank. An excellent way to increase family involvement is invite the Grandparents or relatives to match what your child puts into their Future piggy bank. This is similar to a 401k matching plan that some companies offer.
- Each month show the child how his money has grown.
A Kid$ense survey showed that over one-third of kids, ages 12-17 still use a piggybank to save money. Though this is an excellent way to teach young children the power of saving for the future, it is important for children to advance through fiscal training by the time they are a teenager and move their money to a bank account where they will earn real interest.