Teach Your Children Well

Stop your children from making the same financial mistakes you probably did. Or if you have always been a diligent financial manager, don't rely on genetics to engender similar habits for your progeny. Start teaching them about money early and continue well into their teen years. Here are some ideas:

  • Television doesn't exactly help the cause particularly when children's favorite characters try to convince them to buy everything under the sun. It's a tall order, but you need to counter the impact of television commercials on your children's spending. When your kids come to you to buy them the latest gizmo, explain that you only have a certain amount of money. So you must prioritize. Money first needs to be routed to the items he or she needs to live like clothes, shelter, and food. Also explain the importance of finding the best quality goods at the lowest possible price. That may or may not be the item advertised. Never be reticent to tell the little wastrel that "we can't afford it.
  • When you shop, encourage the child to help clip grocery coupons and assist you when it comes to finding the item you need. Offer a "salary" of half the savings from the coupons you use. Help the child understand that even with coupons, buying items you don't need is wasteful.
  • After your child has learned to add and subtract, consider conducting the following exercise together. Sit down with paper, pencil, and a calculator. In one column, list all the clothes and school supplies your child needs. In a second column, list the quantity of each. In a third column, write down the item's price. Then, have your child, perhaps using the calculator, total the cost of everything on the list. Because you may not have money to afford everything, help him or her figure out ways to cut down both the list and the prices.
  • Based upon what you can afford, it could be a good idea to start giving your child a periodic allowance, perhaps starting between ages 5 and 10. The amount should not be tied to routine chores, which are allotted to all members of the household. Help your child divide up the allowance. Go with the child to open a savings account at a credit union or bank. Explain that, to get the most bang for the buck, at least one-third of an allowance should be saved for the future, perhaps to buy something big that cannot be afforded with the weekly allowance (like one of those damnable iPods). A portion of the rest may be given to charity. The child can spend the remaining amount as he or she sees fit.
  • When giving your child money, give one dollar bills instead of a larger bill. This way, it's easy to divide it into categories - saving, charity and current spending.
  • Go to the bank or use the Internet to purchase U.S. savings bonds with the youngster in tow. Show him or her that the $50 invested now may be worth a lot more in several years, thanks to compound interest.
  • When shopping at stores or on the Internet, encourage your child to comparison shop to discover the best values.
  • If you're using credit cards, take advantage of an opportunity to explain how credit works. Show the child how to verify charges. Explain how to calculate the tip on a restaurant bill and where to write it. Make certain he or she understands the cost of added interest that comes from not paying the credit card bill within the grace period.
  •  Be sure to convey to teens the concept of how short-lived fads can be very costly. You might suggest that a teen save on his or her own for a faddish item. Convey that trade-offs are necessary.
  • Have your older child keep good records of money saved, invested, or spent. Encourage the child to keep receipts for all purchases.
  • Teens often avoid considering the future when they spend. Your teenager needs to understand that money earned through hard work should be carefully spent.
  •  Talk about mistakes you and your friends have made with money.
  • Help your child distinguish between needs and wants. A teen may need a car to get to work or college. He or she may really want a Mercedes (the apple doesn't fall far from the tree). Yet, going into debt for the Mercedes might require working extra hours, leaving less time and energy for more important parts of life, such as enjoying the car with family and friends. The solution: Buy a more affordable car, just like the parents.
  • If you're a grandparent, don't subvert all the hard work that's being done by indulging the grandkids, despite your strong inclination to do so, abetted by the acquisitive grandchildren who soon learn that grandparents are an easy mark.
  • Don't expect perfection when teaching your children about money. Just do your best - through education and example. Children within the same family differ, and it's no different with money.