One of your most critical responsibilities as a parent is to teach your children about money — how it works, how to save it, how to invest, and how to not get into debt. Unfortunately, especially for the families who live paycheck-to-paycheck who comprise the bulk of America, parents sometimes don’t even understand how money works. There are some simple things anyone can do to help your children learn about finance.
1. Never give cash for nothing, except for birthdays and maybe Christmas. when you don’t expect anything from children for cash, they’re learning that cash doesn’t mean anything. If you want to give your child an allowance, expect work from him or her in return for it. If chores aren’t done, withhold part of the allowance. If a child does a terrible job with chores consistently, “fire” him or her. You can even give them raises for doing good work. Money for good grades is fine, as is money for special jobs like snow shoveling or babysitting younger siblings.
2. Encourage your child to get a job as soon as he or she seems capable of some responsibility. The first job is a critical part of forming a child’s work ethic. He or she can start with yardwork for neighbors, dog walking, babysitting, running errands, or any job that is useful for adults in the neighborhood. (Also take advantage of this opportunity to teach your child about advertising, marketing, and customer service!) Never speak of it as if it wasn’t a “real” job; if your child is earning money, it’s real!
3. Require your child to put back a percentage of his or her wages or allowance in savings. Don’t use a piggybank for this. Instead, you can either hold it for him or her and pay a small interest fee on it, or you can open up a real savings account to keep it in. The savings account is the best; nothing is more fun with savings than watching the level in that passbook grow!
4. When your child has accumulated enough money, invest at least part of it. You can put it into a CD, inexpensive stocks, or even a business venture the child wants (for instance, it can be used to buy a lawnmower for a child who works at yardwork). Help him or her understand how their money grows through investment, as well as the risks inherent in it.
5. Teach your child about finances by letting him or her help with yours. You could let your child work on your family budget, help balance the checkbook, or help make decisions about what the family wants to invest in or where they want to go on vacation. The catch is, to make it worth it you need to let your child make mistakes sometimes, provided they’re not catastrophic. For instance, if they want to blow the entire month’s entertainment budget on a trip to the amusement park, let them; and then stick to no frills for the rest of the month, reminding him or her why every time your child complains.
6. Remember that making mistakes is a critical part of learning. If your child makes a foolish decision and loses part or all of his savings, don’t lecture or scold; instead, talk about why the decision was a bad one and what they can do next time. Most critical of all: don’t bail your child out at this time. If you give them money now, they won’t learn anything except that Mom and Dad fix everything.