How To Teach Your Kids About Money

From ATM Etiquette to Allowances, How to Raise Your Children Into Financially Fit Adults

The single most important step in raising a money-wise child is simply for parents to be money-wise adults themselves. And that’s where so many well-intentioned moms and dads seriously drop the ball.

Look, we all know that kids are sponges. They don’t do as you say, they do as you do. Kids study your every move, and unfortunately I see plenty of parents imparting some pretty awful financial moves.

I will never forget the time I sat down with a class of eight- and nine-year-olds and asked them what their greatest fear was. I didn’t even say money fear—just plain old fear. One of the children stepped right up and flatly told me her biggest fear was that she would end up having to support her parents. I was of course stunned by this and asked why she felt that way. She said she constantly heard her parents arguing at night and her mother telling her father things like, “If you don’t stop buying all those expensive electronic gadgets we are going to end up in the poor house. And then who will support us?” But what truly scared me was when I asked the other kids if anybody else felt like this, nearly every one of them seemed to have a similar story.

Parents, I know you want the best for your children. So you should realize how much that means making sure you’ve got your own financial act together. Children who watch parents do stuff like ring up huge credit card bills buying goodies and vacations they can’t afford tend to dig the same financial holes themselves as adults. Whatever you may say to the contrary, a child who sees bills pile up unpaid is getting a damaging lesson in managing money—one they may struggle all their lives to overcome, just as the children of folks who don’t eat right or exercise enough so often grow up to suffer through variations on those same bad habits, even when they’ve been “taught” to know better.

Five Good Habits to Instill In Your Children
Let’s talk about how you can raise confident and happy children who possess a healthy approach to money.

Allowances Have Got to Go
If it were up to me, I would disallow allowances. Or at least the version of allowances that are popular these days. When I ask young children why they get an allowance, they just shrug and tell me because their brother or sister does. Or because their parents give it to them. Folks, this is ridiculous. That’s simply not what an allowance should be about. An allowance is your first opportunity to teach your children to respect money—to teach them that money is something that must be earned. 

Stop caring about the Joneses
Even those of you with a good grip on your personal finances can still screw up your kids if you spoil them. Many people seem to have convinced themselves that showering their kids with everything they want is good parenting. I see this a lot with divorced families; both parents are so guilt-ridden they lose the ability to say no to anything their kid asks for. Then when that kid is out in the real world on a low starting salary, she has no sense at all of financial restraint and thinks she still has to have everything right now. So what does the kid do? Simple: charge, charge, charge. Suddenly, that kid you love to death is buried in $5,000 or $10,000 of credit card debt. My advice: stop caring! And stop spending money you really don’t have to impress people who are probably just as stretched as you. You are all kidding yourselves. So why not get real and start thinking more about your actual financial well-being, and the money lessons you want to impart to your kids, rather than worrying about what everyone else thinks?

Teach your children that ATMs are not magic money trees
If you could get inside the heads of toddlers or young children today, their original understanding of money might be as the prize in a kind of worldwide hide-and-seek game involving ATMs. Whenever you find a machine, you put your magic card in the slot, punch in a few numbers and voila! money pops out. Cool! Quite innocently, parents are totally messing with their kids by exposing them to this “game” without providing any context. It seems to me that when a child reaches four or five years old you have to start explaining how the game really works. A full-blown lesson on the American banking system isn’t necessary, just a few brief, clear messages explaining why you’re able to make ATMs “give” you money on command.

Show your kids some shopping etiquette
One of the best ways to teach moderation and the difference between wanting and needing is to sit down with your child before you go clothes shopping for the new school year. Before you ever set foot in the mall, have a clear game plan: we are looking for three sweaters, four shirts, and four pairs of pants. Period. And if your kid has a few favorite stores, I suggest you insist they case each store before any purchase is made. That way, you’ll avoid buying everything you need at the first store and then having your kid walk into the next store and claim they will “just die” if they can’t also have this or that item. The idea is for them to take a look at everything that’s available and then make choices based on the parameters you’ve set with them.
 

Involve your children when you're paying your monthly bills
In addition to setting the right spending examples with your kids, you also need to teach them the mechanics of managing money. Let them begin to learn by “helping out” when you pay your bills. When a child is a pre-teen or young teen, let him or her even write out a few bill checks for you to sign (or handle the clicks on your online bill-pay). Again, there doesn’t need to be a lecture here, nor is your goal to make your child feel the weight of all your financial responsibilities. But it’s a good first step in showing them what it takes to live. Trust me, a child who receives $5 or $10 for allowance is going to get quite an eye-opener when they see that the gas & electric bill was $300 during the winter months, that the cable is another $40 or so every month, and that your cell phone (one of life’s most basic necessities in their worldview) costs $50 a month.
 

Help your children build credit
You have a few options in how to give your kid credit. If you have a good FICO score of at least 720, I recommend that while you child is young you simply add their name to all of your credit cards as an authorized user. Obviously you are not to give them your credit cards, or in most cases even let them know you have done this. But by doing so, your good FICO score will become theirs as well. Then when your child hits 13 or so, I think it is time to give them a debit card tied to an account you set up for them. Each month you deposit a set sum in the account and discuss with your child what expenses are to be covered under it. And because they can only charge up to the amount in the account, they are going to learn a lot about money management the first time they try to use the card at the mall and it is turned down. (A crucial tip, though: make sure the account at the bank is set up so they will not be covered by a bank overdraft policy; you want them to simply be turned down if they try to charge beyond their balance.)

Article by:

Suze Orman

Reprinted with permission from:

Yahoo.com