Money lessons for life

April 06, 2007|by LYNN F. LITTLE

How are you doing with teaching your children about money? Do you need some ideas on how to start?

Sometimes, parents hesitate to talk to children about money. Reasons include our own lack of knowledge, the fear that we're not practicing what we're preaching and the fact that our parents didn't talk to us about money.

Don't let these barriers stand in your way.

As soon as children can count, introduce them to money. Keep in mind the following guidelines when educating children about money or other subjects:

· Guide and advise, rather than direct and dictate. Let children have responsibility for their decisions.

· Encourage and praise, rather than criticize and rebuke.

· Allow children to make and learn from mistakes and successes.

· Use opportunities to include all family members in money management decisions and activities, as appropriate for their age.

· Explain to children what they can and cannot do and the consequences of going beyond their financial limits.


· As children get older, include them in discussions of limits and consequences.

· Teach them that spending is not a fix for a negative feeling.

Money lessons and your expectations need to be age-appropriate. There are many opportunities to teach money concepts to your children.

For young kids, spark interest in money by using the pictures of money. Work together to count money and make change.

Set up a three-jar system, such as, "now, short-term and long term," or "spending, savings and sharing." All money earned or received as a gift should not be available for spending, but divided among the jars. Money in the "sharing" jar includes gifts or donations to others. When the "saving" jar is full, that money goes into a savings account or may be used for a purchase.

Go with your child to set up a savings account or to purchase savings bonds. When saving at home, add incentive to your child's savings by paying interest, or provide matching funds with the requirement that your contribution stays in savings. To encourage saving, let your child make the decision on account withdrawals. Regular savings is the quickest way to a good credit rating.

Eliminate the "I wants" at the store checkout by allowing them to spend only their own money when they go shopping with you.

Create a lesson out of bill paying. teach the difference between wants and needs. For example, the utility bill is a need, while satellite radio is a want. Help them figure costs per day, then subtract for account balances.

Avoid criticizing when children make poor decisions. Go over what happened; focus on the lesson that was learned. Always praise responsible behavior.

Allowances help empower the child and provide money management lessons. Give a base allowance, which might be tied to chores. It's appropriate to expect all family members to perform unpaid, routine household chores in keeping with their abilities. If chores are not completed, the penalty should be lost privileges. Provide chore opportunities for additional earnings.

As they are able, shift more spending decisions to your child. Let them buy their own recreational items - books, toys, CDs, DVDs and so forth - which reduces the need for the child to ask for money and encourages wise spending.

Occasionally, express your desire to have things you can't afford. Your child needs to hear that you, too, have to tell yourself "no" to spending money on "wants."

Delayed gratification should increase in importance as the child ages. As motivation, set goals for items they want. Delay spending by requiring comparison shopping, developing a list of pros and cons for a big purchase and exploring thrifty alternatives.

Try these money-handling lessons:

· Teach the difference between wants and needs. For an older child, create a list with three columns - needs, wants and wishes. This comparison helps children see that the three do not go together.

· Reward successful comparison shopping. As children save money by finding a lower price for an item, let them keep the money they saved.

· Know how you're doing financially. An important lesson is how to track earnings, spending and savings. Ask your child to write down transactions into specific categories each month, then review together.

· Use the grocery store as your classroom. Demonstrate how to plan a meal, use leftovers, shop by unit price, question coupon or sale values, figure costs of eating out (including tax and tip), and search for lower-cost options.

· Establish a regular schedule for a family financial discussion. Report current balances and concerns and work together on solutions to reduce expenses, avoid debt and increase savings.

· Set a big goal. Sometimes the best motivation for wise spending is to plan how to do more with the money you save.

Lynn Little is a family and consumer sciences educator with University of Maryland Cooperative Extension in Washington County.

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