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Parents are their children's first teachers. So how can you teach your children to manage money wisely?
Start early
Even young children can understand some basics. For example, encourage children to save for a toy they want, and give them a see-through bank to watch their money "grow." Use multiple banks-one for spending, one for saving and one for donating to charity.
As your children grow, adjust your lessons. Young children may not have the patience to save for very long, but older children may be able to save for weeks or even months for something they really want, or for long-range goals such as college or a car.
Remember that some financial lessons are hard ones. For example, if children save to buy a toy that breaks right away, they learn an important lesson. Sometimes children start out saving for a special toy and then change their minds before they have saved enough, and that is a good lesson, too. Children need to learn that money requires making choices-and living with those choices.
Make allowances
An allowance can be an excellent way to teach your child about managing money. According to the financial experts at Diversified Investment Advisors, children of almost any age can receive an allowance, as long as you choose an amount that is appropriate for their age and your financial situation.
Be clear about what you expect the allowance to cover, and make sure there is money left over so that they will have to make choices. Help them develop a budget so they understand where their money goes. And remember that you are still the parent, so you can refuse to let them buy something you consider dangerous or inappropriate, even if they have the money.
Stress saving
You want to teach your children to save for long-term goals as well as for a toy or CD. Set up a bank account or money market fund for your children, and consider matching all or part of the money they put into the account. This encourages them to save and shows them that you value saving.
If your children have earned income, consider opening Individual Retirement Accounts (IRA) for them. Even small contributions can grow over time, starting a retirement nest egg and helping to develop lifelong saving habits.
Older children may want to invest in stocks. Explain the basics of investing-including the risk involved-and then help them choose stocks or mutual funds. Some high schools and communities offer "investment clubs," in which children can invest regularly in stocks or stock funds.
Set an example
Your children watch what you do, so be a good example. Don't misuse credit cards, and make clear that you save to pay for things you buy on credit. Show them you have a savings plan and that you donate to charity. Include them in financial discussions. For example, if you are buying a car, explain how some cars fit into your budget, while others don't.
The best way to teach children how to manage money wisely is to manage money wisely yourself.
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