As parents, we have a duty to teach our children how to grow into responsible, self-sufficient adults.
By the time we send them off into the world, we need to have shown them how to flourish in every aspect of their lives, from taking care of their everyday needs to managing their finances.
Teaching financial responsibility, like all aspects of child rearing, is best done a little at a time, rather than issuing one big, information-filled lecture.
Start Young
Even young children can understand the basics of budgeting. They can grasp simple concepts of spending and saving – for example, teaching preschoolers to set aside a bit of money each week until they have enough to buy a favourite toy will help to show them that their goals can be achieved in time.
As children age and mature, they can be given an allowance, possibly chore-based, so that they can actively participate in money management techniques.
Wants and Needs
One of the most difficult components to mastering financial responsibility is developing the ability to clearly distinguish between wants and needs. Even adults can get into trouble in this area, running up credit card debt for things that they want but cannot afford and do not actually need.
Be sure that your children understand that all families must live within a budget and that before money can be spent on extras such as designer clothes, toys, and family holidays, the basic needs of each family member must be met.
Once the bills for the mortgage, utilities, food, transportation, and education have been paid and a little has been set aside in savings, only then are discretionary funds available.
Short and Long Term Goals
Children, like the rest of us, have a variety of wants and needs, some that can be met quickly and others that require more time.
Explain the concepts of short term and long term goals so that your children understand the difference. It can be helpful to make lists of both types of goals so that your children have a concrete idea of what they are hoping to purchase with their money.
Depending on the age of the child, short term goals might include a video game, movie tickets, or a special outfit. Examples of long term goals are bicycles, cars, and college fees.
Mistakes Are Learning Opportunities
When teaching children to manage their money, expect some mistakes and try not to interfere too much in their decision making process.
Often, the lessons that stay with us best are the ones that we learn the hard way. It is much better for children to make small mistakes with their limited funds now than to make enormous mistakes with their adult finances.
Expect that children will sometimes opt for poor quality items that they can get right away rather than saving for a better made product.
Immediate gratification is very tempting, but after a time or two, they will learn that it is often better to postpone a purchase until they have enough money saved for a well-built, high quality product.
Offer Guidance
Although it is not a good idea to make their decisions for them, it is beneficial to offer guidance and advice, especially for younger children.
Teaching children to see money as a means to fulfill their wants, needs, and to meet both short term and long term financial goals will give them a balanced idea of the value of money.
Allow Them to Earn Some Money
Most of us gained a true appreciation of money once we were earning it ourselves. Even the most thoughtful child cannot truly grasp how difficult it can be to prioritise purchases and postpone some purchases while the funds are being accumulated.
Allowing children the opportunity to earn a bit of money, whether from completing household chores or by securing a part-time job, offers them the chance to learn to manage a set amount of money on an ongoing basis.
Most children will stumble a bit in the beginning, but over time, their judgment will improve and they will gain a sense of gratification from mastering the concepts of both saving and responsible spending.