Maybe you’re raising a miser whose lawn-mowing money is accumulating under the mattress. Maybe you’ve got a greedy Gus who thinks money grows on trees. Kids pick up on our own unspoken messages, and most of us don’t set the best example when it comes to personal finance. For better or worse, the best way to raise financially savvy adults is to start young.
“You can begin [teaching] financial responsibility as young as three if there is interest,” says Suzanne Landers Zavatsky, owner of the Money Sense Academy in Boston, which offers classes for parents and children. “The earlier you start sharing money conversations, the more natural it becomes.”
Some tips to get you started:
- Start young. Even the littlest kids like to learn about money--as long as they can see it in action. Zavatsky suggests starting with the “notion of exchange.” Teach your preschooler that stores don’t just give you things; let them see you handing over the money, and tell them how hard you worked to earn it.
- Use the Power of the Purse. As they get older, have them help you look for sales and discounts. To encourage thrift, you might let a teenager keep a portion of any money she saves you through coupons or discounts.
- Let your kids make mistakes. When you’re ready to give an allowance, let your child spend it freely, within the parameters you’ve set (no R movies, no tattoos). Show him how to set a budget, but don’t use the money to control your child’s behavior, and don’t bail him out if he spends it too fast and asks for more.
- Teach reserve. As your teen gets older, she’ll probably have the opportunity to obtain a credit card, get a car loan, or run up bills on a cell phone. Discuss the enormous interest rate and calculate the final cost of a new outfit or outing that takes a year to pay off. “If you can’t afford to pay cash, you can’t afford it,” says Zavatsky.
- Make kids official. Zavatsky sees $100 in savings as the threshold when “it’s time to visit your local bank’s financial investor and ask about alternatives to the small interest rate associated with most savings accounts…Parents can also purchase a share of stock for their child and let them know that they are now an investor/owner of the company.” Lots of blue chip stocks like Coca-Cola, Apple and Disney are family favorites. Have your child follow the stock’s progress every day online or in the newspaper.
- Make it a game. If giving kids "real" money is too rich for your blood, play the investing game. Have your teens read a basic book on investing, then pick some stocks they think will do well. Track their performance as though you owned them, and see how they do.
- Make giving a priority. Remind your kids to share their wealth. Teach them to set aside a portion of their savings for charitable causes.
The best tip? Set a good example. Make a budget, live within your means, and show your kids that you control your money – it doesn’t control you. That lesson? Priceless.