The amount of personal debt in society today is staggering; the number of people struggling to keep their heads above water is alarming. Children imitate what they observe and will follow the example set by their parents in financial matters. It is vital that parents learn how to raise a financially responsible child.
Society has become obsessed with possessions and instant gratification. Our grandparents used to save for what they wanted, our parents learned that credit could help fill in financial gaps while the current generation of young people is amassing personal debt at an alarming rate.
Understanding Money
Education in money and finances can start at an early age. Research has found that three year-olds have a basic understanding of money while toddlers have a good grasp of getting what they want. This is when financial education needs to start, before poor habits can become established.
Toddlers can be taught that they can’t have everything they want. They can learn that they have to wait for some things. While a toddler may not have an understanding of money, they can learn that there isn’t always money to buy everything they see in the store.
Pre-school aged children can learn more about money through play. Games can focus on recognizing different coins and develop an understanding of the different values. By the time they start school, most children are able to understand the concept of value and different prices of various goods.
Allowances and Pocket Money
Five year-olds are old enough to learn how to manage a small allowance. This can be freely given or earned in exchange for helping in the household or for good behavior. They should be encouraged to save a set part of their allowance and given guidance about what to spend the balance on. Children learn by doing and so they should be allowed to make mistakes – if they buy a large bag of candy, there won’t be money to buy anything else.
Also at this age, children can learn and understand the concept of needs and wants; that needs take priority and wants may have to wait. In fact, for small children, their wants will usually change frequently. Have the child write a ‘wants’ list to show them how often their wants may change. This is an early lesson in delayed gratification.
Setting Goals
Teach young children to set financial goals. The amount they save from their allowance can grow into enough to buy a special toy, for example. Encourage them to do small jobs to earn extra money to make their savings grow faster. Allow them to experience the delight of a goal achieved and a purchase made.
Budgeting
As children approach the pre-teen years, this principle of saving and guided spending can be developed further. Pay their allowance monthly instead of weekly and teach them how to follow a budget to make sure their money lasts for the month. Show them how to record their spending so they can see where their money goes.
Debit and Credit
Teenagers need to understand how credit and interest on purchases works and how much they could end up paying for an item bought on credit. Teach them responsible spending by arranging a debit card to be linked to their bank account. They cannot over-spend their savings but have the experience of shopping without cash.
Get The Children Involved
Involve your children in the household budgeting from an early age. While they don’t need to be confused with the detail, they can learn about income and bills that need to be paid by a certain date. Let them have a say on how family money is spent on things like holidays and entertainment.
Leading by example is the best way to raise a financially responsible child. By teaching your child how to handle money responsibly, you are setting them up for a successful future that won’t be plagued by money worries.
Readers, what do you think about the financial responsibility of kids nowadays? Is it up to the parents or the teachers to teach about personal finances? Why don’t more schools teach personal finances?
Our two year old is just starting to get the general concept of money and that’s really cool. He understands that you have to put a penny in the pony ride at the grocery store to get the green button to work. Small stuff but I’m excited to teach him our kids good money habits, which is key, as I know a good deal of what I learned came from watching my parents.
Sounds great. Glad you are starting early to get him on the right track.
Like the Rolling Stones song goes “You can’t always get what you want..but if you try, you get what you need”. My wife and I used to sing that song to my son when he would complain because he wasn’t getting what he wanted. By not getting everything you want handed to you forces you to be resourceful and work hard to get the things you want. It also helps you to realize the worth of your time and efforts. Great article Miss T!
Well said. I totally agree. The good things don’t come easy and that is how it should be. That way we truly appreciate them. I will definitely have to remember that song for when I start a family.
These are such important lessons. I’ve taught basic money information in school before and it’s amazing how much kids know from watching their parents. Some parents include their kids in financial discussions and it makes a huge difference in their knowledge, while others just moan about paying credit cards and their kids pick up on that too. Setting a good example is important; kids learn through adult actions.
So true. Kids pay way more attention to what we do compared to what we say and this is why setting a good example is important.
These are great lessons – I feel like if you get them in early, you wont have arguments with the teenagers who are bound and determined to learn every lesson the hard way.
You might be right although if I think of myself as a teen, I still learned the hard way despite what my parents tried. I think it is kids being kids.
I think it is a lot of kids being kids as well, but most of the lessons I learned the hard way were new financial things – others were/could be habitually taken care of at an early age. Something like always save X% of your income could be turned into a habit by age 12.
I think your point about teaching kids to wait is especially important. There’s good researching showing that kids who have the ability to practice delayed gratification win in ways that go well beyond wise money management.
Sounds like interesting research. Patience is a virtue that is for sure. The better we learn to practice it the better of we are. I am still tweeking mine.
My son just turned 1and I can’t imagine teaching him anything to do with money just yet…although I have taught him basic sign language like finished and eating. I am excited that MoneyBeagle mentioned his 2 year old is picking up on stuff like that!
Kids at a young age can learn a lot more than you think. I would give some stuff a try.
Nice lessons. I really think that kids take a lot of their cues on how to handle money from their parents, so a big part of teaching them is also based on actually being responsible as adults! That being said, it’s great to teach them lessons when young, as habits are formed then. Better to start young and get on the right track, than learn difficult lessons later in life and change habits when older. I think about this often regarding my kids.
Well said. Like I mentioned in another comment, kids watch what we do not what we say. Plus we have to practice what we preach or our kids will just think we are hypocrites.
Great lessons. I think that it really does fall on the parents to teach financial responsibility, but that is a big miss in society right now. Hopefully this will improve with time.
Agreed. There are a lot of neglectful parents around. It is a sad state of affairs. This is why schools should play a stronger role in teaching kids finance. That way if they don’t get it at home they can still get it in class.
Can I just say I love the photo:)?
I love this idea and use it often in my life. Oftentimes when you go against the grain or out of the pack you find a great little niche where you can live and have what others dream about.
I live in Houston, which has a lot of traffic. Instead of a typical work schedule, I have been working a compressed Monday through Thursday 7:00-5:30. I hardly ever hit traffic! Other benefits are I have three day weekends every week (which helps with writing as well as a more balanced personal life), and I get an hour in the office each morning with hardly anyone there.
Sounds like you have it made.
I used to work a compressed schedule as well. Gettin into the office early is always nice as no one is around to bother you for a few hours. I also skipped all of the traffic and got home earlier!
There are 631 Million credit cards in america. If you take the weight of all these cards, it’s more than sixteen 747 airplanes!
I think personal finance really comes from the home. Our education system doesn’t teach real life lessons when it comes to PF.
Interesting fact.
I think parents and schools need to teach kids. That way they get the info more often giving a better chance of retention.
I learned early how to save and I passed it on to my children. Although I taught personal finance in high school, young people must practice these skills. Parents are the best role models for children because they do notice what parents do.
Agreed. We need to concentrate on setting a good example. I think this goes for our friends who spend time with our kids. We need to make sure what they say is consistent with what we say. Kids pick up so much.
The bottom line is, parent’s can’t possibly teach their children to be smart with their money if they can’t do it themselves. It’s like a parent that talks about the neighborhood behind their back, and then tries to tell her child not to gossip. It just doesn’t work.
Absolutely. Hypocrisy will not work in this situation. Kids watch what you do not listen to what you say. Parents need to makes sure they are doing what they want their kids to do.
Good point, so I think it really starts from the parents. Like Derek said, you gotta set an example early on to teach them about finance.
Absolutely.
Teaching by example is so important. You can talk until your blue in the face but the whole idea of “do what i say, not what I do” just doesn’t work.
Surprisingly yes. Kids even at a young age can tell if you are a hypocrite.
Give kids the tools to understand money. Allow them to work for pay. Don’t indulge with excessive materialism and then let them learn from the consequences of their actions. Of course, expect plenty of mistakes along the way!!!! As much as I know about money, I’m not sure how to impart that knowledge in a way that kids will take to heart. Sometimes they need to make their own mistakes.
Good point Barb. I agree. You can do what you can to teach your kids the basics but they also need to learn on their own through experience. It is those lessons we learns from hands on experiences that we remember.
Both of my parents are really bad with money so I feel very fortunate that I turned out ok and learned how to save and keep a budget on my own. A lot of other people aren’t so lucky. I think it’s a great idea for parents to teach their kids how to be financially responsible and wish schools would teach personal finance skills too.
You’re right. You are lucky. In most cases kids pick up the same bad habits their parents have. Glad to hear you overcame that.
I think the responsibility largely falls on the parent. However, I think the schools should do some basic budgeting and money management courses. They have so much on their plates though. It’s hard to make room for everything. I do think this is one area that just shouldn’t be skipped. Yet, I’m not sure what it would replace. Ohio, where I live, just recently added it to the requirements for all high school students.
Well that is a start. I agree, there is a lot to fit in during school time but to me personal finance is just as important as science class. We need to teach our kids at home and at school the basics of money management.
[…] How To Raise A Financially Responsible Child By Miss T of Prairie Eco-Thrifter, published on Yakezie.com This article had great timing for me as I have been wondering lately when is the right age to start giving an allowance and how to start teaching my 3 year old about money. There are some great tips in this piece, and some words of wisdom about first leading by example. […]
I like this post and agree with pretty much everything you’ve said. Even if the schools did teach personal finance, I wouldn’t expect them to do a very good job with this topic nor for the kids to be interested because it would be dictating instead of doing. Learning by example and getting your kids involved is a great way to help them out. Finances shouldn’t be a mystery.
Definitely. In person example is the best way to learn. To me this is an effective method for learning many things.
Good article. I especially like the budgeting section suggesting that you give your children a monthly instead of a weekly allowance to teach them how to budget wisely. I had a hard time budgeting growing up because I never had to as a kid, and when I got a job where I got paid monthly, it was extremely difficult to adjust to that.
It’s true. You get used to certain routines and change can be difficult. To me, we have expenses for the month so it makes sense to look at our earnings monthly as well.
Great article. As my daughters turned 9 and 13 this year we have been focusing on the concept of saving for what they want. It’s obviously more of a challenge for my 9 year old but toward the end of the year I have seen them take some major strides forward in their understanding of this concept. I really like the idea of involving them more in the household budgeting. I’ll let you know how it goes.
Glad to hear it is working out. The earlier they learn the better those habits will stick.
I started my oldest son on a clothing allowance. He gets $20 every pay period and has to buy everything he needs. He has suddenly turned into a very frugal shopper for most things so that he can afford good shoes. It was interesting to watch.
I am also trying to teach him to save for the long term, and also have some savings for a bigger purchase that might come up. He has a job where he gets $20 per week – roughly $80 a month. The plan is to have $40 for spending, $20 for long term savings, and $20 for a bigger spending goal. I need to figure out a way to work in giving – I think I will talk to him and get his input. He is very compassionate, so I am sure he will want to figure out a way to give to the church out of the $80 budget.
Sounds like you have this down pat Jennifer. You son sounds like a very responsible kid. Good idea on asking him about the giving part. It might surprise you what you find out and what he thinks is important to support. Going with what he decides will be huge support for him in learning that giving is important and respected.
I just read this to my wife out loud. We thank you for this. This is GREAT. I have a 2 year old and a 9 month old. We want them to learn from our examples. I had a successful career in dance and made some good money over the years but that was a bonus because when you get into the arts you do it for the love rather than the money.
Glad to hear you have found out what works well and will work on passing that on to your kids. Parents really do need to make the effort to teach their kids early on about PF and you are doing this which is great. Keep it up and good luck.
[…] out there.For others, though, money is taboo. I once dated a girl who grew up in a family where money was never discussed openly. The parents took care of everything and the kids had no idea what was going on. If you grew […]