One of the most valuable skills you can teach your child is money management. Savings bonds, a savings account, and cash are thoughtful gifts that, when paired with financial management lessons, will turn gifts acquired throughout childhood and the teenage years into skills that will last a lifetime.
Parents and caregivers have a major influence on what and how children learn about money. In fact, studies show parents and caregivers are children’s preferred source of money management information. Children learn about money through the example set by parents and by experiencing firsthand the processes of planning, budgeting, saving, and spending. Become a role model early—typically as soon as the child understands that money is necessary to buy something he or she wants.
Children learn money management skills by daily observation and by imitation. By watching and listening to you, your child will begin to emulate your values, attitudes, decision-making skills, and money habits. Even very young children observe their parents and other shoppers at the grocery store, post office, bank, automated teller machines, mall, and at home.
For example, if you shop with a list, your children will probably shop with a list. If you typically spend money before it is earned, it will be difficult for you to teach your children about saving. As a result, your children may fail to learn about planning for future spending and to regularly set money aside for saving.
Provide an example of how careful planning and responsible spending make financial sense:
• Ensure your children recognize and understand the common denominations of money (penny, nickel, dime, quarter, and dollar bill).
• Share and discuss the difference between needs and wants.
• Share and discuss the price of favorite foods, clothing, and toys.
• Share and discuss how your values help you make choices. Include your child in the process of making a purchase choice. Highlight your decision process in selecting the best product for your needs/wants and budget.
• Explain that ATM cards, checks, and debit cards are used to access money already deposited in the bank.
• Explain that charges made on credit cards represent borrowed money that must be repaid using future income.
• Share and discuss monthly bills and credit card statements.
• Provide an allowance. A monthly allowance can be more effective than weekly in teaching money management because it involves a larger amount of money and must last longer.
• Provide opportunities for your children to make choices with their money. Allow them to experience the consequences of their choices.
• Use a piggy bank or open a bank account to teach the importance of saving for short-term and long-term goals.