The benefits of understanding finances at a young age will contribute to children’s economic success at all stages of life, so it is never too early to start teaching them about smart money management.
“By providing our children with firsthand experience in earning, saving, and spending money, they are more likely to develop a savvy sensibility and the framework necessary to manage their personal finances as adults,” says Marguerita Cheng, CFP®, a certified financial planner professional and mom of three.
The CFP Board, a nonprofit organization dedicated to supporting professional standards in personal financial planning, offers four important tips to help you teach kids about money:
– Make money management a family affair. Get the whole family involved in financial planning. Talk to your kids about how they think money should be spent, such as saving for college, taking vacations, or dining out, and how to balance short-term indulgences and long-term financial planning goals.
– Model smart spending. Let your kids know how you spend and save on a daily basis. Take them to the grocery store and explain saving money with coupons and sales, and how monthly expenses such as Internet and phone bills, as well as water and electricity, are part of a household budget. Explain how turning off lights saves money, as does making turkey soup for dinner with leftovers after Thanksgiving.
– Let kids earn money. While not all parents approve of allowances, consider giving your child the opportunity to handle his or her own money, whether it is a regular allowance, small stipend, or money gifts from relatives for a birthday or special occasion.
– Establish a savings plan. Open a savings account for children. Show them statements and explain how money grows. Older children can have access to accounts to make deposits and withdrawals for food, clothes, games, and activities with friends. Kids may make some mistakes, but avoid the urge to rescue them. One experience with an overdraft charge on an account can be a valuable lesson for a lifetime of smart money management.
Visit letsmakeaplan.org today for more financial planning tips and guidance for your children or yourself, and to locate a certified financial planner in your area.