Every parent wants their child to grow up with a head for finances. We are always proud when our children decide to save-up or make smart value-based decisions. The good news is that these are skills we can learn, and parents are the best people to teach kids about financial responsibility. By modeling your own good choices and giving your children opportunities to practice smart money decisions, you can set your child up for financial independence long before their first worry about wages or rent.
There are six simple techniques that any parent can use to teach children financial responsibility, whether your little ones are just barely making choices or in their teens and ready to learn full independence.
1. A Small, Predictable Allowance
The most universal tactic is to give your children an allowance and let them make decisions on how to spend it. Of course, we all know there are good and bad types of allowance. We advise a small allowance, just enough for a few movies or a local weekend activity each week. This will challenge children to a) save up for treats, b) try to earn more, and/or c) make conservative choices.
2. Offer Kids Opportunities to Earn
Kids can learn that effort and earning are always connected with opportunities you provide. Set up a chart of "extra" chores that kids can do for bonus spending money. If your child wants an extra treat in the store, agree on a chore they can do of similar value. Or you can build a plan to save up for a school trip, a special trip, or an extra-large birthday party.
Many children will show they've learned by starting to bargain or propose their own chore-for-pay ideas to earn more allowance.
3. Shop Together & Discuss Your Process
When you go shopping, online or in stores, take your child along with you. Talk about how you choose items and why. Talk about how you compare similar items based on their price, weight, quality, and the family preferences. Let your child see how you shop and how you make the best decision for the value of an item.
Just like teaching a teen to drive, teaching a child to shop is all about sharing your process. Share how you avoid false deals, find good savings, and when splurging for a treat is worth the cost.
4. Let Them Plan Budget Events
Children about 10 years and older become ready to plan their own events. Start with a simple event and limited choices, birthday parties are a great project for most kids. Set a practical budget, then let them choose the decorations, snacks, and their own cake from the grocery store and keep a tally of the cost as you go. Teens with some practice are often ready to plan family camping trips and holiday travel on a budget.
You can let your kids shop spontaneously or help them build a budgeted plan with online research before finalizing the list.
5. Give Children Value-Based Decisions to Make
Children benefit from weighing options and making their own choices. In a year, give your children a few important value-based decisions to make. Ask if they want to go to the movies (compare a family-set of ticket prices) or the arcade (compare an afternoon of quarters) and let them choose. Or let your kids compare buying a pack of small games vs one big game. As they get practiced, you can give them choices like what kind of lessons or camp to choose based on price to what they value from the experience.
6. Allow Them to Learn from Mistakes
Finally, let your kids make the occasional mistake to learn from. If your child insists they will like the strawberry wafer cookies that you know taste like cardboard, let them find out first-hand and talk about value afterward. Offer bumper-suggestions like "Are you sure that's what you want? You've never tried it before." But after that point, children will learn caution when financial boldness leads to the occasional disappointment.
Any parent can teach their children to be good with money by giving them opportunities to practice. With a small allowance, chances to earn, and budgeted projects, kids can learn almost everything they need to thrive financially as responsible adults.