It's a story that almost every parent experiences. You're doing some quick shopping with your child in a department store and you happen to stray too close to the toy department. Suddenly, a doll, model car, or stuffed animal catches your child's eye and with three little words, "I want that," a new consumer is born. If you're lucky, a quick, "maybe something for your birthday" will buy you some time as you make a hasty exit to the parking lot. If not, you may have to endure a lengthy and loud protest from your child in the middle of the aisle (followed by that same hasty exit to the parking lot!). Regardless of the circumstances or the age of your child, the day will come when it's time to learn the value of a dollar and how money works. Although it may not seem like an important subject, the values you instill in your child about money at a young age will be a vital part of shaping a financially responsible adult with a solid work ethic.
Good money management skills come naturally to some people. For others, controlling spending and making an effort to save is a learned skill that comes with much practice, willpower, and determination. The same holds true for children—some seem to be born savers, and others are born spenders. Good financial skills are an attribute that will pay benefits throughout a lifetime. As with the development of most good habits, starting to talk to your child early about earning money and the concepts of spending and saving is key. The University of Minnesota Extension Office notes that parents, regardless of income level, should start talking with their children about finances while they are young. They also add that since couples often have different experiences and outlooks on financial concerns, it is vital for parents to first discuss their beliefs and agree upon their approach so financial issues are presented consistently to children. Some of the topics they recommend visiting include:
- As parents, what do you want to communicate to your children about money?
- How do you create an open environment where the family can discuss money issues?
- How should the children receive money? Will they be given an allowance?
- How will the family respond to the effects of peer pressure and advertising when it comes to their child's buying requests?
- What practices and attitudes will the child observe from his or her parents when dealing with money?
- As parents, how will a child's choices in handling money be addressed considering personality differences, stage of development, and special needs?
Once you have agreed upon the values you wish to convey to your child, you can begin to incorporate the concept and subject of money into your daily interaction with your child. The Credit Union National Association (CUNA) notes that children learn by example and experience. They watch as you pay for items using cash, checks, and credit cards. Take the time to explain the differences between the methods of paying for something. The CUNA also recommends the following tips for teaching preschoolers about using money wisely:
- Keep your explanations short and simple.
- Look for "teachable moments" where you can introduce new topics to your child (i.e., explaining that getting cash from an ATM comes from money you deposited in the bank at an earlier time).
- Let children make mistakes such as making a poor spending decision or losing money. That experience is a more effective learning tool than a lecture.
- Watch television with your child and talk about advertising and what the ads are selling.
- Set a good example by letting your child see you spending money wisely. Let them watch as you write the monthly mortgage or rent check. Make a shopping list and explain why you make the choices you do and what you do to limit your spending.
- Set rules for shopping trips and stick to them to reduce the chance of your child misbehaving in a store. Describe the actions you expect from your child and what will happen if your child breaks the rules. Ask your child to repeat the most important rules before each shopping trip and enforce the rules calmly and consistently.
- Consider giving an allowance. Having an allowance is a good way for children to learn to make their own money decisions and to live with them. As a reward, increase the amount of the allowance as your child grows and becomes more responsible.
- Reassure your child that you will always be there to provide shelter, food, and necessities regardless of the family's financial situation.
There are five main concepts about money that your child will need to understand—earning, spending, borrowing, sharing, and saving. According to the University of Minnesota Extension Office, some of the key points to convey with each concept include:
- Assign each family member unpaid tasks to encourage responsibility for the operation of the household.
- Help your child record earnings and expenses.
- Time spent earning money should come from a child's leisure time, not study time or from time spent performing household chores.
- Teach concepts such as availability, quality, and comparison-shopping.
- Let your child make spending mistakes and explain that you have made mistakes too.
- Explain to your child that you can't afford to buy everything that you want either.
- Include your child in family financial decisions that are appropriate for their age.
- Teach the "big picture" of money (i.e., that going to a movie means spending money on a ticket, gasoline for the car, popcorn, candy, etc.)
- Create a contract for any loan with your child, regardless of their age. Charge interest, make a loan payment book, and explain how making payments works.
- Never loan more than the child can repay and don't forgive the loan amount.
- Discuss the concept of saving for a large purchase as opposed to borrowing money for it.
- Teach your child that sharing includes more than money and may include his or her skills, time, or materials.
- Use special occasions to convey that it is good to share with others who are less fortunate.
- Encourage older children to volunteer some of their time to community service projects.
- Explain opportunities where you and your child can donate time, effort, and skills to worthwhile projects.
- Differentiate between short-term saving for a specific need or want and long-term saving for unknown and unforeseen needs and emergencies.
- Motivate children to save by matching the amount they save at the end of each year.
- Encourage saving through non-monetary rewards such as praise and encouragement.
As adults, we know all too well how quickly our hard-earned money goes to expenses. Although monetary concepts can be a bit advanced, most aspects of money can be explained in simple, easy to understand terms with a little effort. By incorporating your children into normal, everyday spending and saving decisions, you'll pave the way for them to make wise decisions as their earning and saving power increases throughout their lives.
University of Minnesota Extension Office—www.extension.umn.edu
The Credit Union National Association—www.creditunion.coop