Teaching Children the Basics of Money Management

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This is a guest post by Vic Lance of nation wide surety company

From entertaining television ads to colorful Internet banners, your children are bombarded with advertising messages each day. You might think your kids don’t need to know about budgeting until they get older, but it’s never too early to start teaching them the importance of financial responsibility. Many experts recommend teaching kids about money from an age as early as three years old. As soon as your children are old enough to understand how money works, they’re old enough to begin learning how to manage their finances. When you teach kids about money from an early age, they’ll also be more responsible with their finances once they’re on their own.

To teach your children about money, you’ll need to provide them with regular income. Develop an allowance system that works like a regular paycheck. Give kids the same amount of money at fixed, regular intervals. This functions as a base salary that they can receive in return for performing certain chores or jobs. You can also provide incentive pay that works like a commission. Make a list of additional jobs or special tasks that kids can perform when they want to earn extra cash. While some parents prefer to separate household chores from monetary rewards, it’s important to make sure you’re teaching kids how to work in exchange for money. It’s possible to teach kids about budgeting with a simple, chore-free allowance, but you can only teach them about earning through incentive-based pay.

Once kids have regular income, start talking about budgets. Experiment with different fiscal categories and determine how much your children should save, donate, invest and spend. Many parents allow their children to spend 50 to 70 percent of their earnings. The remaining money is divided between charitable causes, long-term savings goals and investment funds. In order to be sure your kids are learning, make sure they can define the concept of budgeting in their own words. Have kids explain their budgets to you using the terminology that makes sense to them.

When your kids understand how budgeting works, they can begin to set financial goals. Each time your child wants to buy something, discuss the cost and its proportion to his or her income. If your kids want to save up for more expensive items, help them understand how long they’ll need to save in order to reach their goals. For many kids, a new video game might not seem as appealing once it’s put into the perspective of saving for several months. Other kids will enjoy the challenge and the satisfaction of working toward a long-term goal. You should also consider whether additional money earned from chores or birthday gifts can go toward your child’s spending goals. Some parents place the same budgeting restrictions on unexpected income, while others allow children to use the money freely.

Though kids might struggle initially to maintain willpower and resist spending, they’ll be better off in the long run after learning about money management at an early age. You can maximize the value of these lessons by teaching kids how to save for unexpected expenses and future purchases. When kids learn to budget for the unexpected, they’ll be prepared later in life to handle expenses like car repairs and medical bills. With careful planning and open discussions, you can teach your kids how to enjoy money while handling their finances responsibly.

About the author: Vic Lance is the owner of nationwide surety company. He helps answer the often-asked question: What is a surety bond? while guiding entrepreneurs through the start-up process.

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