Teaching Your Child about Money

You don’t have to be an accountant to begin your child’s financial education. Start with the basics to help your child take on some relatively easy financial responsibilities.

  1. Take your child shopping. You’ve probably been shopping with your child in tow for years, but this time, explain how you choose products based on price, quality, and need.
  2. Help your child make his or her own spending decisions. Help your child make decisions about which items to buy and which to save for. This can be accomplished most easily by setting a spending limit. Your child will learn discipline and be introduced to the idea of budgeting.
  3. Set up a savings account. Now that your child knows that some items can only be purchased by saving up for them, take him or her to a bank and open a savings account. Help establish a fixed amount from your child’s weekly allowance to place in the account to continue the budgeting lesson. Your child will be impressed as the amount in the account increases, and interest is paid on their money.
  4. Explain “money substitutes.” Setting up a checking account will teach your child how to access money in the bank. Help your child add deposits and subtract check amounts so she or he understands that money does not simply “appear” in the account.

    You also want to introduce the idea of credit and its possible pitfalls well before your child is ready to use a credit card. Make sure that your child understands that borrowed money must be paid back and that a credit card purchase is a promise to pay for the item later, not a cash transaction.
  5. Encourage your child to get a job. When your child is old enough, suggest that he or she get a job to gain some financial independence. Explain how taxes are taken out of payroll checks, and where those taxes go. This lesson will introduce your child to the world of work and the financial responsibilities that will be a part of life for a long time to come.
  6. Teach by example. Parents are their children’s best life teachers. Handle your own money wisely, and your children are likely to as well.

A source for some of the ideas contained in this article was Forbes.com, “Teaching Kids about Money”.