Money $ense $tarts Early

Money may be the last strain of modesty left in our modern culture.  We speak frankly of relationships, feelings and failings, but rarely does anyone freely discuss his or her earnings or wealth. That’s why we need financially savvy children.

This financial reticence can adversely impact how well children manage their finances in adulthood.  Like most of life’s important topics, education should start early and be geared to the intellectual stage of the child.

Tips for Raising Financially Savvy Children

Money is an extraordinarily abstract concept to children.  The relationship between what the value of a parent’s labor is and the goods that can be purchased with it can be quite fuzzy.  Our modern economy makes understanding money concepts even more difficult when items are bought magically with a plastic card and cash is dispensed from a machine.

To begin making money more tangible for children, here are some parental tips to guide their development in understanding and managing money.

Weekly Allowances—Allowances can be tied to fulfilling responsibilities such as chores or maintaining school grades.  This helps to establish a connection between work and reward.

Parents may want to consider the pre-condition that each week the child allocates this money among consumption, charitable and savings buckets.  Starting this early will help establish good budgeting habits that will pay dividends in adulthood.

Involve Children in Financial Decisions—Of course, they won’t participate in whether to lease or buy a car, but the trade-offs in purchases of food, clothes and other products that touch their everyday lives is certainly something in which children can be involved.

Establish a Vacation Budget—The assault of buying opportunities on a vacation can be overwhelming (to the parents who are constantly asked “Can we get that?”).  Instead, each child can be given a set dollar amount designed to last the entire week.  In this way, a child will learn to budget, fight impulse buying and prioritize near limitless wants.

Open a Mutual Fund Account—Placing birthday and other holiday money into a mutual fund account will teach a child about long-term vision and investing patience.  To maximize the impact, quarterly statements should be reviewed with the child so they can learn about the fluctuations of the market and adopt a healthy inoculation to them for later in life.

Finally, in young adulthood, parents can consider providing college-age children with a credit card or cash card to teach them how to manage spending and debt.

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