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Teaching Children About Money Management

Within the last decade or so, real-time banking has revolutionized access to funds and bank account information.  You can deposit your paycheck, then immediately purchase groceries, and log into your bank account from your smart phone in the parking lot to see how much money you have remaining.

Money Management for KidsThis is an efficient and customer-friendly way to bank.  And, for those of us who grew up in an age of check registers and no online access to information, it is a revolutionary concept with virtually no downside.  But, what about our children?

It’s never too early

With all of these technological advances, it is easy to overlook the “basics” of a bank account and financial literacy.  So, it is never too early to start teaching your child about successful money management.  Below are a few tips to get you started:

1.  Integrate money management lessons into your daily conversations with your child.

2.  Be proactive about finding free resources and activities to further your child’s financial education.  There are many fabulous materials available online, including this Money Management for Kids Web site sponsored by PBS.  As a parent of two young children, I just recently started using these resources with my oldest daughter, and I’ve found them to be quite helpful in explaining financial topics.

3.  Teach your child the difference between a need and a want.  Spendster.org has some great materials for this, including this helpful Needs vs. Wants Worksheet.

4.  Consider giving your child an allowance.

  • Make the amount age appropriate (not excessive).
  • Be consistent (think of the regularity of a paycheck).
  • Set a required percentage or amount to contribute to savings.
  • Help your child create age-appropriate savings goals.
  • Allow the discretionary portion of the allowance to be spent entirely at the child’s discretion (within reason).  This teaches children that successful money management adds to the independence that they so desperately crave.  Example:  Give your 6-year old a $5 per week allowance.  Allow 50% to be spent entirely at his/ her discretion and require the other 50% to be saved for a short or medium-term goal (i.e. shoes that are too expensive for the family budget, your local annual fair or amusement park excursion, etc.).

5.  When your child is ready, teach him/her to track incoming funds and outgoing funds – even when it is cash-based.

6.  Be proactive rather than reactive to expected expenses as your child matures.

  • Work with your child to budget for known expenses—lunch, snacks, gas, clothes, activities, etc.
  • Make their allowance sufficient to cover these expenses or create a special fund for them.
  • Resist the urge to respond to emergency requests for money (unless it is a true emergency).

7.  When your child is ready, introduce them to your banker and help them open two bank accounts (with you jointly) to use for their discretionary funds and savings funds.

  • Teach them to use a check register.
  • Order at least a few checks and create opportunities for them to use them.  While electronic payment methods are becoming the norm, there are still instances when a check is needed.
  • Have the bank set up your child with an online banking login and (if applicable) access to mobile banking.  With today’s technology, there’s little excuse for your child to gauge their financial solvency by whether or not their debit card works when trying to make a purchase.

Technology and the advent of real-time banking have definitely made personal financial management much more convenient.  However, convenience is rarely a good substitute for a solid foundational understanding of financial principles.

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