Teach Your Kids About Smart Money Management

It’s funny that many of us moved out of our parent’s home and proceeded to live our grown-up lives without ever learning much about financial responsibility and money management.

I remember taking a semester in high school about budgeting, opening a bank account, and balancing a checkbook. We learned about it from a book, without the experience to go with it.

With that very little bit of money education, we were expected to have all the information we needed to go on and prosper. Many of us grew up to eventually realize that money management was a little more complicated than that.

It’s important to teach our children about smart financial habits at an early age, and continue to ingrain those habits in them so that one day they can move on with their adult lives, well prepared for their futures.

I just saw a commercial for a pink toy cash register and fake credit cards, geared towards little girls. Toy manufacturers are trying to teach them at an early age to shop, spend, and charge for their little heart’s desires; our children are the shoppers of the future, and they want to make sure that our kids are well-trained to consume by the time they are earning their own paychecks and using credit cards.

We can’t let advertisements and commercials sabotage our attempt to teach our kids smart financial habits. When we see a child in a store screaming about a toy he just has to have, he’s not feeling any different than the average consumer who wants something and buys it; the little boy is just frustrated that he doesn’t have the means to purchase it himself. He can’t understand why Mommy or Daddy doesn’t just pull out the “magic card” that allows him to take the toy home with him.

Young children are smarter than we sometimes give them credit for. We can explain to them that after working to earn money so that we can eat and have a place to live, that we can gradually save some money until we have enough for the extras, like toys. We can then provide them a chance to earn their own money so they can save for something they want.

Any child can be given age-appropriate chores; even a five-year old help you in the garden or set the table. If they feel like they’ve earned their own money, they will be proud of themselves for it, and they can begin to understand that rewards come with hard work. Just be careful that they don’t expect to be paid for things that should be their responsibility anyway, like cleaning their room or picking up after themselves.

After a child has had the chance to earn and save, he will eventually have enough to buy the toy he wanted. When you pull his earnings out of your wallet to pay at the cash register, he can watch the cash he earned be exchanged for the item he wants to buy. Paying for everything, all the time, with a credit card can confuse young children, they don’t understand that the card represents cash that someone had to earn and save until they had a chance to earn and save themselves.

When your children get older, and start making money on their own by babysitting or mowing lawns, they can be taught about using a bank, checking accounts, and debit cards. You can get a joint account with them and only let them use the account under your supervision until you’re sure they understand how to be responsible with it.

Teach them how to balance the account and keep track of all spending. Be sure they understand that there are fees for overdrafts. Take them shopping for things they want, and let them pay for their purchases with the debit card. You want to be sure that they have a firm grip on money management before they get their first credit card.

Many kids have a credit card by the time they begin college, these days some even have one as early as high school. Most likely they won’t have a credit history, so they won’t be able get one on their own; you’ll probably have to get a joint credit card with them. Don’t just apply for it on your own and hand the card to them when it comes in the mail; they should be involved in the whole process, so they can fully understand the cost of using credit.

Before you apply, go over credit solicitations with them; explain what the terms and conditions mean. Let them read the credit card offer, so they can see the interest rates, over balance fees, late charges, and annual fees in black and white. Make sure they truly understand that a credit card is essentially a pre-approved loan on a piece of plastic, and that all charges are debts that have to be paid back.

It’s a good idea to keep your child’s credit limit to no more than a few hundred dollars, or whatever you deem fit, regardless of what you are approved for. It’s so easy for experienced consumers to spend more than they should on credit; it may be dangerous for a young person who’s new to using credit until they have practice at it. It would be better for your child to learn that they’ve spent more than they could afford at three hundred dollars, rather than not figuring it out until they’ve maxed out their two thousand dollar credit card.

When the bill arrives in the mail, teach your child how to read the statement and make the payment on time. It may be simple for you to just pay it online yourself or write the check when you're paying the rest of your bills, but doing that will deprive them of the chance to learn the most important part of credit card use, paying back the debt.

Be sure they don't fall into the minimum payment trap, that's the way that many consumers stay in perpetual debt. Teach them to pay the entire balance before the end of the grace period, so they can have free use of somebody else's money every month.

By starting young and teaching them well, we can ensure our children will make better money decisions than many adult Americans make today. Even if we wanted to buy the toy for them anyway, we can use that as an opportunity to teach them. They will watch you and learn from you; your habits will, no doubt, become theirs.

When our children are leaving for the school bus on a cold, rainy morning, we are there to be sure they are prepared for it. We help them bundle up and ensure that they have the appropriate raingear. We show them how to tuck their pants into their boots so they stay dry. Then they learn to do it themselves and know how to keep warm and dry.

We would never consider letting our child attempt to brave the elements unprepared. Knowing how to manage money is a requirement for successful living; we have to teach our kids how to take control of their finances, so they can be prepared when it’s time to do it on their own.