Friday, June 11, 2010

Teaching Children Good Money Habits

This is a guest post written by Ronnie Carlson from the Frugality Game, an awesome website with a game that teaches you how to be more frugal. Computers, games, and frugality- three of my favorite things combined to make one totally awesome method of entertainment and learning. Ronnie shares some terrific ideas to help your children become more money savvy. I'll have to remember these when my kids are a bit older. 

Photo by Alan Cleaver
Remember when you were a kid, that feeling of a five dollar bill burning a hole in your pocket? Your legs would fidget, and you’d reach into your pocket every five minutes just to make sure it was still there?

I remember, and the only way to get rid of that feeling was to ride my bike to the corner store and waste it all on soda and various sugary treats. I had little sense of value, and no sense of saving.

Oscar Wilde once said, “The only way to get rid of a temptation is to yield to it. Resist it, and your soul grows sick with longing for the things it has forbidden to itself.” You may know better, but kids with money believe this! They want to use their allowance the moment they get it, and they don’t really care what they purchase, as long as they're spending it.

But if they aren’t taught the proper way to manage their money, what will this lead to? An entire generation of kids who will be living with their parents until they’re fifty (and we don't want that!), and they might never have the ability to do things like buy a house, or save for retirement.

Many kids nowadays have an unwavering sense of entitlement, feeling as if there will always be somebody there to take care of them, or catch them when they fall. This way of thinking has to stop, especially in the face of such an inclement economy. The change starts right at home with the parents.

Kids are brilliant. Their minds absorb information like sponges. Kids raised in multilingual households pick up different languages much quicker than adults. They should learn the language of money early, too.

Here we have a few ideas to help you teach your kids good financial habits that they’ll keep with them long into old age.

1. Set Goals. Kids don’t have a sense of time. Three months from now might as well be thirty years away, so why would they ever want to save their money? The trick is setting goals. If a child wants a new videogame, make that something to strive for. If you just tell the child to wait until their birthday and you’ll buy it for them, that doesn’t teach them anything. It just reinforces the belief that their parents will get them what they want. If you want to make that videogame really mean something, make it something that they have to work towards. Take a piece of poster board and draw an empty measuring cup on it. As your child saves his or her money, fill the cup by coloring it in with a marker. This gives your child something visual to reference, which is usually a better way to teach kids something.

2. A great idea that I just recently heard is allowing your kids to shop for their own clothes. Of course, as the parent you would have full veto power over anything they want to buy, but giving them a budget to work with and allowing them to experience what it’s like to have to get the most out of their money is an absolutely wonderful way to teach your kids the value of a dollar. But again, if they come back from the dressing room with rain boots and a cape for their summer attire, you can definitely pull rank and veto that decision.

3. Be the lender. If your child would like a dollar for a candy bar, lend it to him or her, but let them know that interest will build on it daily, and that if they don’t return it as soon as possible it may reach an amount that will become difficult for him or her to pay back. This could even lead to situations where their allowances are being garnished for failure to pay back the debt. It’s a great way to teach kids the dangers of borrowing. You can even teach the kids to negotiate interest rates on the amount they are borrowing.

4. Give them a charity allowance. Giving kids a chance to do something good with money is important. It teaches them that money doesn't have to be used solely as a self-serving tool and gives them a better understanding of the value of what can be accomplished with money. Earmark part of their money to only be used for the benefit of others.

5.  Involve the children with your bills. You don't exactly have to tell them how much is going to what, but letting them in on the process from a young age will get them used to the routine of paying bills. That will definitely come in handy down the road.

Teaching solid money habits when your kids are young will prepare them for life. Imagine how difficult it is to be first introduced to these concepts when you’re twenty and expected to make long-lasting decisions. Instead, teach them when they're young. It's good for them and good for you.

What steps do you recommend for teaching kids about money? Any ideas that worked for your family? How did your parents handle teaching about money? (Photo by Alan Cleaver)

Guest author Ronnie Carlson writes about frugality at The Adventurer's Blog. He's a scriptwriter for The Frugality Game, a free, online adventure that helps you improve your finances while having fun. Simple yet powerful financial tools (to budget and track your spending), adventurers around the world, tons of games, and $65,000 in prizes await when you play The Frugality Game.

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