Wise Choices for You & Your Family
14
Teaching your kids to properly manage finances is an
invaluable life skill crucial to their future success once
they reach adulthood. Managing personal finances
involves skills like budgeting and prioritizing that
you can begin teaching even at a preschool age.
Use an allowance as a money
management teaching tool
First, look at your family’s budget and decide how
much can be dedicated each year to an allowance for
your child. Keep in mind that you want the amount
to be small enough that your child will have to make
some tough decisions and practice the concepts of
budgeting and prioritization. Divide that amount
by 52 to determine how much your child’s weekly
allowance will be. Most parenting experts agree the
allowance should not be tied to performing routine
chores. Household chores are completed to keep the
household running smoothly and the family should
work together to finish them.
Teach your child how to budget
Discuss with your child what sorts of expenses are
her responsibility to cover. As she gets older, her
share of responsibilities and her allowance should
grow with her. Label three clear jars ‘Save,’’ Spend,’
and ‘Give,’ and help your child estimate how much of
the weekly allowance to place in each, based upon
what she is responsible for. The ‘Save’ jar is for the
portion of the allowance used to reach a goal, such
as buying a new toy. The ‘Spend’ jar is for everyday
expenses, like buying school supplies. The ‘Give’ jar is
for charitable contributions. Using clear jars and cash
provides a visual aid that reinforces the concept that
if you go over budget for the ‘Spend’ jar, you are out
of money and have to wait until the next time you
are paid to buy something. It also teaches the value
of waiting and not blowing the contents of the ‘Save’
jar impulsively. As your child moves into the teen
years, consider depositing the weekly allowance into
a bank account instead of using cash and help your
child track her budget, expenses and account balance
in a spreadsheet.
Teach your child the value of
money and how to invest
Teach your young child the concept of ‘everything has
a cost’ and the value of money by playing fun games
in the grocery store. Ask your kids to guess the cost
of items and the person that comes the closest wins.
Explain how to compare prices and how researching
to find the best deal can help you buy more with the
amount of money you have.
Once kids have an appreciation of the value of money,
teach the concept of investing the money from your
‘Save’ budget. Kids should understand that there are
no guarantees in the world of investing and with
some higher risk investments, like stocks, you can
lose everything. Introduce selecting investments
based on the amount of risk involved, how easy it
is to get your money back out (liquidity) and how
much money the investment may earn (return on
investment). In addition, explain how to mitigate
risk by having a diversified portfolio and how
compounding can make your investments grow. One
fun way for kids to learn about investing is to set up
a pretend portfolio of investments and help your kids
track the performance of the investment for a couple
of months. Once your little investor has developed an
understanding of the basics of investing, you could
let her select and buy a couple of shares in the real
stock market, so she can watch it grow.
HOO’s learning
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