Teaching Children the Importance of Money
Children seem to be born with an insatiable desire to spend. Whether it’s Christmas, birthday parties, or a trip to the local mall, children are never too shy when it comes to vocalizing their wants. And sometimes, they’re relentless.
Parents face this on a daily basis. Dealing with the barrage of purchase requests becomes a part-time job. What’s the best way to give your child a deeper understanding of where money really comes from? Reducing greed, instilling awareness, and teaching good work habits in children will go a long way to creating financially successful adults.
7 Ways to Teach Your Children About Money
1. Start Early
The best way to start is when they’re young. Showing them the importance of money will help them to understand why they can’t have everything they see. Begin by explaining the process of working:
- Why you have to go to work
- What you do for your employer
- What you receive for doing it
- Why you need money
As soon as they’re ready, teach them about coins and dollar bills. Show them how many coins equals one dollar, how many dollars equals a five-dollar bill, and so on. The earlier they have an understanding that the green bill on the counter is not another coloring page, the better.
2. Turn the Water Off
Now that your child has some understanding of how money is earned, it’s important to teach about waste. While explaining about spending money, teach them about the household bills. The ones they’ll grasp the easiest are the ones they can see. The utility bills are a good example. While they’re brushing their teeth, teach them to turn the water off until they need it again. Explain how the water going down the drain is like money going down the drain. And, when leaving an empty room, teach them to turn the lights off. Explain to them that the less money wasted on unnecessary bills is more money that can be used for household groceries, fuel for the car, and family vacations. Give them the sense that your wallet is not a bottomless pit and that, when payday arrives, the money is allocated for certain expenses.
3. Differentiate Between “Want” and “Need”
Children think they need everything they want. Teaching them the difference is an important step in helping them decide what to do with their money. Some important questions for them to think about, include:
- Do they already have what they are asking for?
- If so, is it broken, lost, or missing parts?
- Can it be repaired?
- How often do they play with it?
- What do they really need, instead?
Marrying want and need can be a creative way to save money and teach restraint. For example, a young child that wants a new fire truck but needs new sneakers, may be just as happy with a pair of sneakers with a fire truck on them.
4. Make Saving Fun
Put a piggy bank in the kitchen. Make a game out of cleaning up by letting them put coins in the piggy bank after each toy is put away. Then, when the bank is full, have them sit on the floor with you and wrap their money into coin rolls. Bring them to the bank with all of their wrapped coins. Have them trade in some of their coins for dollars, the others for savings. Sign up for a bankcard and let them use the ATM to make withdrawals from their own account. Reward their good efforts by taking them shopping to purchase what they need.
5. Give Them Purchasing Power
Let your children be king for a day. Take them to the store with you and help them to understand prices, sales, and ingredients. Then, have them decide which items are the wisest to purchase. Establish a budget for the shopping trip and make it a goal to stay within that amount. Give them a calculator and let them keep track of how much you are spending. If you need to override their decision, make sure they understand why. This will both broaden their sense of responsibility and improve their analytical skills.
6. Teach Them Personal Responsibility
The simple concept of teaching a child how to care for and take responsibility for their personal possessions helps them to understand value. Value is crucial in appreciating worth. Once a child really appreciates worth, the concept of money will fall into place.
Easy exercises include:
- Putting coats and shoes away – installing easy-to-reach coat hooks solves the problem of little arms.
- Putting toys back together with all of their parts intact and storing them in a safe place.
- Keeping their clothes folded and stored in dresser drawers, so no one can step on them.
- Making sure books are always put on bookshelves, never on the floor.
- Carrying unbreakable dishes to the sink.
7. Let Them Work
Instead of just giving out a weekly allowance, let your children earn their money in small ways. From cleaning up their room to mowing your lawn, jobs are essential in teaching children that money will never grow on trees. Pay a fair wage. Don’t overcompensate but make sure the child has enough incentive to want to work, much like an adult. In addition to payments, make sure you praise them for a job well done.
Teaching children from an early age about money can save you and them a lot of trouble in their later years. Remember that children, as adults, most appreciate those things that they’ve worked hard to get. You aren’t doing your children any favors by buying them everything they want. A little financial instruction can go a long way to helping your children become financially responsible adults.
© 2008 AmericanCreditFoundation.org®. Michael G. Peterson is a co-founder and Spokesman of American Credit Foundation, an IRS 501 (c)(3) non-profit consumer credit counseling organization that has assisted thousands of individuals and families with their financial situations through seminars, education, counseling services, and, debt management plans. For more information, and free consumer resources visit www.americancreditfoundation.org
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