Having the money talk with your kids and starting them on the road to financial fitness at an early age may be more important than first thought. Some child development experts now believe that children start learning money lessons at around age 5, a time when many parents think their kids are pretty sophisticated about electronics, but not quite up to navigating the minefield of money management.
Long before your kids begin asking money questions, they're already watching the way you handle the family finances. The money lessons they learn from watching you will help form the basis for their attitudes about handling financial matters -- possibly for a lifetime. It turns out that talking to your kids about money should be a multistep process that starts with setting a good example.
This can be good news and bad news. If you like to take a creative approach to money management with regular forays into overspending on indulgences, you'll be at risk for passing those spendthrift habits on to your children. If you're careful about money, you'll be leading by example and showing your kids real life lessons they can develop into their own strategies for financial success. By following your lead, they'll learn about budgeting, delaying gratification in order to save for the future, and using coupons and other saving methods to get the best bargains for the goods they do buy.
When the day finally comes to talk about money matters with your kids, hopefully they'll already have learned some solid lessons from the example you've set. If you've been shielding your kids from the financial realities of life in order to give them a few carefree years, now may be the time to start running the numbers with them. The more they understand, the more confident they'll begin to feel about a topic that already interests them to one degree or another.
On the next page, we'll take a look at some common sense strategies for broaching the topic of dollars and cents with your children. These days there are tools that offer a kids eye view of the world of saving. Encouraging your child to use one can make the money talk almost fun.
Tips for Talking to Kids About Money
The topic of money can get complex, but luckily there are tools and a few clever strategies that can make the process of teaching your children dollar sense easier:
- Start young -- At around age 5, a child is already interested in playing with coins. As a parent, you can use that interest as a bridge to start discussing some of the basic elements of money by comparing coins and showing your child what coins can buy in places like the market. Piggy banks are a great second step in this process. Giving your child coins to place in a piggy bank will help introduce the concept of saving. Coins that accumulate in a piggy bank are a dramatic visual reinforcement of the time value of consistent saving long before your child is introduced to real life bank accounts and investing.
- Use visuals -- Coins are a good place to start, but when your child gets a little older -- say 7 and up -- you can branch out into the areas of spending and wise saving. To avoid making this all sound like the "clean your bedroom and pick up your toys" talk, using aids can help. There are a number of software packages on the market that teach kids about saving and managing money. There are also several useful Web sites that help kids learn money lessons by tracking their spending or helping them save for a specific goal.
- Use real life lessons -- Taking your child with you when you shop and bank can teach him about checking accounts, signing up for rewards and rebates, and using coupons to save money on things he would likely buy anyway. This is a low stress approach that will inspire questions and encourage a useful dialogue between you. Oh, and check with your bank to see if they have a tour or tutorial program to introduce children to banking. Some banks offer this useful and friendly service.
- Give your child an allowance -- Giving children money for incidentals is a traditional way to help teach them the value of a dollar. Money experts like Suze Orman are skeptical of the practice, though, and recommend a more measured approach: To help your child develop a realistic and responsible relationship with money, expect him to perform certain basic chores, like cleaning his room or clearing the dinner dishes, for no compensation. Those tasks are part of family life expected of everyone. Offer compensation for certain additional chores, like raking leaves or washing the car. Instead of offering the money in advance, though, only provide payment after reviewing the completed tasks with your child. This is a great time to talk about money and reinforce the lesson that money compensation is related to consistent, reliable performance.
- Encourage saving -- If you teach your child one enduring lesson about money, make it the importance of saving. There are a number of ways you can bring the lesson home, but none works better than showing him that his money has profit making potential all its own. Urge your child to save a certain percentage of his allowance or earnings every month, and consider contributing to the kitty if he manages to save the minimum you agree on. Experts suggest encouraging your child to save at least 10 percent of his earnings, and saving from 30 to 50 percent isn't too much.
When your child becomes a tween or young teen, help him set up and maintain a free checking account and interest-bearing savings account. Consider it his introduction to the real world of money management.
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