How to Raise Financially Smart Kids

Learning to save up for a wanted toy will train him to avoid unnecessary debt in the future.

Children are increasingly developing an attitude of entitlement: if I want it, you should give it to me. But the sooner they realize that no one gets anything for free, the sooner they begin to make sound financial decisions. Raising your children to be financial smart will not only make your life easier by reducing their "gimme" attitudes, but it will set them on the course to be financially wise adults.

Instructions

1. Pay children for doing their chores. An allowance shouldn't be an automatic gift. Children need to make the connection that money comes from work. If they don't complete their chores on time, they don't get their full allowance. Offer additional jobs for children to complete to earn extra income, such as cleaning out the garage or rearranging the pantry.

2. Have children use their allowance to buy the extras they want. Parents should provide the basics of food, clothing and shelter, but indulgences such as candy, designer jeans or video games should come from the kids' allowance. This practice helps children understand how much items cost and that they need to make careful decisions as to what they really want, because once they've spent their money they can't buy something else.

3. Encourage your children to save their money for a more expensive item. If a desired item will take them five months to save up for it, then show them to do so by saving their money in a jar or piggy bank. If possible, offer the child additional jobs in order to earn more money towards the item, teaching her that extra work results in earning what she wants more quickly.

4. Set up a savings account at a bank for a long-term goal, such as a college education or a first car. Have your children make regular deposits, even if it's just a few dollars, and show them how interest can grow.

5. Suggest to your children that they donate a portion of their money, perhaps ten percent, to a charity of their choice. Too often kids see only what they want without realizing that there are many other people far less fortunate than they are. Donating to charities help children develop financial perspective. Show your child how to research different causes that may be meaningful to him, such as aid for impoverished children or neglected animals, and show him how to make a donation every few months. Some charities list how donations as little as $5 can make a big difference.

Tips & Warnings

• Avoid giving in to children's demands for extra cash and "forwards" on allowances. Teaching them to be disciplined about their money now may help them avoid excessive debt when they are adults.

• Don't bail out children in a financial bind. Instead, help them find ways to rectify the situation themselves.

References

• Linda and Richard Eyre: 8 Common Mistakes Parents Make When it Comes to Allowances