I created money management for kids two because there was too much information to cover in one page. It includes more on finances, savings, and children.
Stop at an ATM. Withdraw some cash. Then ask your 6 year old what just happened. They may think that the ATM is a money printer and the cash is free.
This is the perfect time to explain how banks work. Most first graders will be interested.
This is the time to explain why you use a debit card or pay the entire balance on your credit card each month. I explain it this way. "If I do not pay the full balance on my credit card each month, the item that I purchased will end up costing me more."
Obtain a credit card with a low credit limit (for example, $100) for your teenager. Require full payment each month. They will undoubtedly ask about the minimum payment option. This is the time to explain that the interest rate may be over 15 percent. The rate is that high because it is an instant loan without any collateral.
Keep a money journal. Yes, that means carrying a small notebook (or app on your smartphone) and entering an amount each time you spend buy anything. It is similar to a food journal that a dieter keeps. At the end of the week, most people are amazed.
In order for a child to listen to a parent's suggestions, it is wise to frame the suggestion in a language that the child understands. For example, if the child really would like to go to an expensive theme park, map out a plan for that to happen.
Children will be willing (and should be willing) to help make it happen. Plan far enough in advance that they will have a chance to contribute. All ages can put the money in their "mid-range" savings jar.
The goal might be a family vacation. There is nothing wrong with having a child contribute some of their savings for the vacation. It is, in reality, just a transfer of money if it is allowance money from the parents. But, it is important as the child will feel as though they are contributing.
If the child wants a new bicycle, consider a used bike first. Regardless of which is chosen (new or used), parents have the option of helping to finance the cost, but the child should be involved.
It is safe to say that children learn by having money. They must learn to spend it wisely and save it regularly. The question is, how will they learn to spend and save their allowance and how much should it be?
Will they learn from their parents, friends, TV, school, or their own mistakes? I strongly recommend that parents be the primary influence. And allow them to make mistakes and learn from them.
I suggest starting with a small allowance such as one dollar per week at about age 6. Increases will depend on spending and saving habits that they develop. Usually the amount bumps up a dollar each year if they are responsible.
Should the allowance be tied to the adequate performance of household chores? There are two ways to think about that. One is that all members of the household need to contribute to the various chores. No one is entitled not to contribute.
The other thought is to list the chores that are to be done and put a dollar amount on their value. The risk with the "chore for pay method" is that the child may be willing to sacrifice a portion or all of the allowance to get out of doing their chores.
Giving a teenager a clothing allowance will likely create wise choices. Wanting $100 shoes may be scaled back to $50 blue jeans and $50 shoes. The point is money management is taking place.
"Wants" and "Needs" are likely to replace just "Wants". No one is born knowing how to spend wisely and save regularly. The blank slate that we are born with must be cultivated and nurtured if we are to develop into financially responsible adults.
Parents would like to have children who work hard in school, make good choices, and learn to manage their money. They would like their children to have bright futures full of promise. Parents, however, must make the effort to teach their children.
These things do not magically happen. It is a process that takes years even if it is started at an early age. More often than not, the financial lessons that children learn from their parents will guide their future. At least, that's the way it was for me.
Go to Money Management for Kids (Part One).
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