How to Raise Financially Responsible Kids
May 9th, 2010 Posted in Personal Finance For Kids
Teaching Kids Financial Responsibility
Teaching kids about money and financial literacy is an ongoing process and it is as significant as teaching kids about general education and other life disciplines. Grasping the significance and value of money at an early age will help kids to realise the importance of being financially responsible and respect money, thus helping them navigate their life more smoothly in financial terms. Today, I will discuss some simple steps you can take to make your kids financially responsible in later years.
Understanding Why Money Is Important – The first important thing you can do to is to make kids understand what money is and why it is important to be responsible with it. Explain what money can do; for example, it helps to live a good life, support family and friends, and it helps to support those who are in need and their favourite charities.
Start Early – Children are able to recognise and show interest in coins when they are 4+ years old. Grab this opportunity; when they start showing interest, help them identify different types of coins and bills. When you go for groceries and money exchanging deals, start letting your kids interact with merchants. This will teach interactions with others in general and in terms of money.
Action is Louder than Words – Talking nice things about money is not going to do anything unless you show your kids that you do what you say – and you believe in what you do. Don’t just tell them to stop spending wastefully; set examples by doing the same. Don’t just tell them to invest for the future; do the same and show them how you are doing it regularly in your mutual fund or investment accounts.
Be Careful with Allowance – Do not pay kids an allowance without giving them proper guidance towards how to spend it. Break down their allowance into smaller parts, such as 10% should go to the piggy bank, 20% should go to science magazines, and so on. It is recommended not to pay kids for regular house chores that they would normally do. They can get paid for special projects for which you would normally hire outside people such as mowing the lawn, cleaning the backyard, etc. – if they can complete it successfully.
Bank Accounts and Credit Cards – Bank accounts and credit cards are a part of daily living in the 21st century and kids should be taught about it once they are 7 – 10 years of age. Explain to them how banks and credit cards work, how and why credit cards charge interest, what to do to avoid paying interest, and so on. Open savings accounts for them, give them credit cards (with lower limits and supervision over how they use it), and walk them through towards becoming a financially responsible adult.
The Importance of Saving Money Early – Once kids start earning, teach them the beauty of saving money. Encourage them to save 15 – 20% regularly and continuously as they enter adulthood. Saving is a virtue that needs to be practised from an early age. If kids can make saving regularly a permanent habit, they will be able to reach financial goals much earlier and will live a happy life.
Learning to Spend Less – If there is one financial tip that is considered the number one tip of all time this has to be it: spending less than you earn. Teach kids to understand this concept and tell them that if they can follow it religiously, they will be wealthy one day.
Learning to Appreciate What We Have – We are privileged to live in one of the wealthiest countries on earth where abundance is everywhere, including riches. Many other nations are not as privileged as we are. Teach kids to appreciate and to become grateful for what we have and show them the joy of giving and sharing.
Keep in mind that “children do what they see.” Parents and adults can be role models by taking sound financial steps. The onus is on you to secure your kids’ financial future by guiding their financial journey through a solid financial roadmap from their early days.
More personal Finance For kids posts:
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Canada’s Personal Finance Blog
3 Responses to “How to Raise Financially Responsible Kids”
By canada.creditcards.com on May 11, 2010
Lots of good info! Agree that you must begin implementing some sense of financial responsibility as early in a child’s life as you can. I don’t really remember, but my dad says I began receiving “allowance” at age 5. The goal was to put my “allowance” into a big jar and see how much I could save before my birthday. Definitely instilled a sense of “saving” in my daily life that resonates still today.
By Toronto Bankruptcy Trustee on May 22, 2010
This is a good article. I was a facilitator with the “Dollars and Sense” program run by Junior Achievement Canada in the Toronto area. The to a description of this program on JA’s website is here:
http://www.jacan.org/programs.cfm?itemid=7316&smocid=17
This is oriented towards kids in Grades 7 and 8. It teaches budgeting, understanding how interest is calculated as well as investment principles. It is an all day 6-hour program in which volunteers from the local financial community volunteer their time to teach this program to their local school.
The school must contact JA and make a request for the program to be taught in their school. I was very proud to be part of this and it’s definitely worth checking out JA’s website to get more information if you are a parent who’s interested in having this program taught in your child’s school.