Those who learn and develop good saving habits early in life are more prepared to deal with what lies ahead and develop into financially responsible adults.
The younger set
Begin teaching your child the concept of money, including the values of coins, from the ages of four to six. During this time, keep it simple and allow your child to earn money to save in a piggy bank for small chores.
It’s all elementary
By the time your child is seven, an allowance is essential to learning about money and developing good habits. Familiarize your child with banking, and open a savings account so they can watch their money grow. Help your child to set achievable goals, such as saving for a new toy or putting away extra money for holiday gifts. Many banks charge service fees unless a minimum balance is kept, so make sure they save enough to put in a bank account first. You could give your child monthly interest for their savings as an incentive.
The teen scene
Designer clothing, entertainment and car expenses are the biggest areas of teen spending. Some also put away for post-secondary education. But few teens are prepared for the adult world, says developmental psychologist Nancy J. Cobb in Adolescence: Continuity, Change, and Diversity. This is because the responsibility of covering food, housing and insurance, for example, is not something most teens are primed for while still living at home. Those teens involved with the family budget and who contribute to family expenses learn a valuable lesson. Opting to show teens the spending categories in which they have a direct impact on family expenses and agreeing on a reasonable amount in which they can contribute to help cover the expenses (i.e. cell phone bill) can go a long way toward preparing teens for adulthood.
Regardless of whether teens contribute or not, their working hours should be limited to no more than 10 to 15 per week. According to Cobb, investigators have found adolescents who work, especially 20 or more hours per week, are not as engaged in school as their non-working peers. Based on the findings of various studies, this can shortchange students in the long-term. Still, there are many ways teens can learn the value of money and develop good habits. In fact, limiting a teen’s funds may force them to be more selective and make wiser financial decisions. Be sure to give your adolescent an increased allowance and a clothing allowance, and help them to budget their money wisely.
Tips your kids can bank on
Help your child develop good saving and spending habits with these suggestions:
Allow your child to make some of their own spending decisions. Place reasonable limits and offer appropriate guidance while giving opportunities to learn from their mistakes.
Don’t loan your child money every time they want it. But do offer occasional opportunities for them to experience both the costs of borrowing (interest) and repaying the loan. When deciding whether to loan money to your child and how much, consider the purpose of the loan, past repayment and their ability to repay within a reasonable time. Charge interest on loans so children learn the cost of borrowing. Remember, regardless of how financially savvy we raise our kids, borrowing does have its place, at the very least, for acquiring a home and reliable transportation, both of which can be wise investments even when borrowing is necessary.
Teach your child how to set financial goals. By the teen years, these may include saving for automobile expenses, post-secondary education and other long-range plans. And don’t overlook the importance of short-term goals, which offer your youngster a feeling of accomplishment and a boost in self-esteem.
Require your child to put at least 10 per cent of each paycheque or allowance into savings. If accustomed to this practice, it will be much easier to adhere to as an adult.
Don’t be completely secretive about family finances. Children have few opportunities to see and experience the financial side of the adult world. This doesn’t mean you need, or even should, disclose everything. But it’s easier for kids to understand if they can see it in concrete terms. Develop a detailed household budget, and explain it so your adolescent can see how your family spends and why.
Discuss the different ways in which you save and invest your money, and explain how these different plans work. Point out both the benefits and the risks.
Try a computer program, such as Family Bank by ParentWare, to help your child track their allowance, expenses, loans and more. This program is available for download of a free trial. It calculates interest for both savings and loans, allows children to write cheques to their parents, creates graphs of their spending habits and more, download.cnet.com/Family-Bank/3000-2132_4-10077035.html.
Kimberly is an author and freelance writer. Her articles have appeared in more than 200 newspapers, parenting and women’s magazines, and other publications.
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