My parents taught me many things in life, but one thing that never seemed to be a priority was how to manage money effectively. This lack of financial discipline followed me into adulthood when I had a tough time managing my finances at first.
I wasn’t going to make the same mistake, so I decided to start teaching my kids about money management at a young age. I took a variety of approaches, including assisting them in opening their own savings account, which allows them to become more comfortable dealing with banks, compensating them for doing work so they learn the value of earning money, and encouraging wise spending whenever they wanted to purchase something.
These, together with a gradual introduction to the adult world of banking and spending, can help kids become money masters by the time they reach adolescence.
Here are the top tips I learned during my years of parenting, to effectively teach your children solid money management skills.
1. Open a Savings Account
Many parents register a savings account for their child soon after birth, but the youngster is rarely involved in the account. Once your child understands the concept of money, it’s best to start an account where they may participate actively.
Children frequently receive money for important events such as birthdays or holidays, and it is enjoyable for them to feel “grown-up” when they deposit that money at the bank. These are life-saving abilities that will serve you well into adulthood.
2. Do Not Pay for Chores–Pay for Actual Work
Many parents give their children allowances in exchange for keeping their rooms clean or performing duties such as doing the dishes. That is something I never accomplished because some things are just life skills and a part of everyday life for which you will not be compensated later in life.
Instead, I divided work descriptions into two categories: domestic duties and paid employment. Some duties, such as cleaning a room or putting out the trash, are considered part of daily life, so they will not be paid to perform them as adults.
Other chores, however, such as yard work, gardening, or heavy cleaning, are jobs that you may ordinarily hire someone to handle. In this scenario, I would compensate the children for their efforts. This technique instills in children the importance of hard work and earning money.
3. Learning Financial Penalties
Financial penalties, such as traffic citations, overdraft fees, and other fines, abound in real life. This is something that children should learn from an early age. Children are naughty, so don’t compensate them when they do something that costs money on purpose.
Instead, penalize them by taking money from their own savings account and explaining why they did so because of their own wrongdoing. As a result, they will learn to accept responsibility for their own actions as a result of this.
4. Encourage Wise Spending
Parent loves their children, which means our instinct triggers us to buy them the things they want. But this doesn’t teach anything about money management. It’s fun for a child when they want a special toy or piece of clothing, to purchase it with their own money.
They’re going to learn valuable life skills and patience if you allow them to save and pay for some purchases all on their own.
Many people have no idea how investments work, but it’s a skill that should be learned early and will pay off in the long run. If you want to do your own investing, bring your kids with you to the broker and let them watch the process.
Teaching your children the fundamentals of investing will only benefit them in the future. When this is combined with the fundamental skills of managing a bank account, getting a job, and developing a savings strategy, they will be able to become experts at managing their own money.