Every parent (or grandparent or aunt or uncle) has, at one point or another, been forced to deal with the desperate pleas of a buy me that generation kid or teen who just has to have the latest game system, trendy toy, or pair of designer jeans. If left unchecked, such consumerist behaviors can lead to massive debt in later in life.
But what steps can the adults in a young person’s life take to help them grow into a financially savvy adult?
The simplest way to teach young people to budget is to give them an allowance. That means the money they control that is given to them on a certain day in exchange for certain agreed-upon behaviors. A good general rule how much allowance to pay is that, upon reaching a pre-determined age, each child in the family receives the number of dollars per week equal to their age in years.
If a child wants extra money, they can earn it by doing additional chores for the household or neighbors. Parents or guardians may also want to institute rules regarding mandatory saving or tithing (charitable giving) if such things are important to them.
But when should children start learning about budgets? While many people assume preschoolers are too young to learn about finances, experts say that the perfect time to start educating them because that when they start asking for money.
Some advice starting lessons as early as two! However, parents shouldn’t expect much saving or impulse control from this age group. Children will merely imitate the money-related actions of parents, older siblings, and others in their lives. That’s why it’s important to model good financial behavior!
By kindergarten, children are even more curious about money. They realize that money is used to purchase things and are beginning to identify the coins and bills used in the process. You should begin to expose them to the financial machinery of life.
Let them watch you write checks, use the ATM, and pay for things with debit and/or credit cards. Answer their questions about money honestly. Nervousness and avoidance of the topic will teach them that money is dirty and taboo- a bad precedent to set.
When the child enters first grade, you might want to set up a savings account in their name and let them decide how much money to put in it a week. Actually, going to the bank and making the deposit will teach them that being financially responsible is a grown up thing to do. Besides, children are more apt to save once they discover the magic of interest!
By third grade, kids should have a say in family expenses related to them. For example, if a child is getting a new bike decide together on how much you are willing to pay for it. Then go to the store and have a look around. Comparison shop. Check out prices on the Internet (don’t forget to figure in the shipping charges). If the child chooses a below-budget bike, they get to keep the extra money. But if they want to go over budget, they fork over the balance.
By middle school, young people may want to babysit or mow lawns for extra income. I think that parents should encourage this behavior by not lowering a child’s allowance when they start earning money. Children should be given more financial freedom at this age, particularly with their earned income.
That means that parents may have to tolerate the too-short skirt or wild haircut, as long as it was paid for with the child’s own money. Trust me, the financial lessons you’re child learns will outlast your annoyance with whatever they decide to buy.
High school students must be prepared for the financial independence that comes with going to college or living on their own. Give them a finite, monthly budget that designed to cover school supplies, clothing, and anything else that they might need, as well your contribution to their fun fund. Let them be in total control of the account, whatever the consequences. If they decide to spend all their money on a pair of alligator pumps and can’t afford gas or lunch for the month, that’s their problem.
It’s also important that you teach your high school student to manage the tools of independent finance. Get them a debit card and a checkbook. Teach them how to keep track of expenses using both. You might also want to allow them to have access to one of your credit cards, just to see how they manage. As scary as that seems, if things get out of hand, you’ll be better able to control things if they’re still living under your roof than if they’re away at school or living on their own.
Whatever level of financial responsibility you decide you feel child is ready for, it is vital that you begin to teach them the lessons they need to know in order to survive in the world. Start today. Your kid (and you wallet) will thank you.Whatever level