Teach Kids the ABC’s of the Almighty Dollar

Are your children starting to ask — or even demand — money for toys or electronics? If so, it may be time to begin to teach them the ABC’s of the almighty dollar, so that you can start giving them a better grasp on the concept of money management.

Start Early

Although it might appear premature, even 3- and 4-year-olds can begin grasping concepts such as needs and wants, as well as the idea that most people can’t buy every single thing they want. So it’s important that you start teaching even these young children about the relationship between work and money.

For example, even a simple trip to the grocery store can be a great learning experience for a child. Show your kids how different products cost different amounts, and explain why you feel it’s sometimes worth spending more, and when a lower-cost version of an item will suffice.

Making Allowances

Grade school often is the time when parents begin to provide allowances as a way to help their children start to learn the concept of how to live within a budget. Before simply handing over the cash, however, you should talk with your child about the purchases which you expect this allowance to cover, such as video games, etc. Otherwise, you may end up getting ongoing “requests” to cover expenses that your children believe shouldn’t be coming from their allowance.

Also, this is a good time for you to introduce “values” to the conversation. Younger children are quite capable of understanding the concept of using their money, as well as other resources, to help those who don’t have as much, and also to begin to save for longer-term goals.

Furthermore, it’s important that you consider the relationship between your child’s allowance and the chores they will be expected to handle. Some parents tend to view an allowance as strictly a money management tool and that, as members of the family, the kids should have chores that they’re expected to complete without any compensation. Of course, this isn’t to say that a child can’t receive an additional payment for completing chores that go above and beyond normal day-to-day tasks.

Weighing Needs vs. Wants

As your child starts to gain experience handling small amounts of money, you can ask for their input on larger financial decisions. For example, before going out to buy new school clothes, you can discuss what items your child needs the most, and whether it makes sense to buy several less expensive items, or one more expensive.

Given how tuned-in many “tweens” are, you should certainly discuss with them how advertisements are designed to prompt consumers’ desire for a specific brand or product. For example, point out that a popular brand of shoes costs significantly more than a store brand, and then ask your child if the difference in cost is worth it.

Middle-school years are also a perfect time for you to open a bank account in your child’s name. You can use this opportunity to explain how to record deposits and withdrawals, and provide a simple calculation to demonstrate the long-term benefits that come from the compounding effect of interest.

Talking to Teenagers

High schoolers can be expected to take on even greater responsibility for their own expenses as they get older — including clothing, entertainment, cell phone use and transportation costs, just to name a few.

When it’s practical, you can also bring your teenager into the discussion when you’re researching major purchases, such as a new television. They can read product reviews and descriptions, and compare prices of different models, which will help them to better understanding the decision process involved in major purchases. Be sure to make it clear at the beginning of the process that you’ll have the final decision on the purchase.

If you believe your child is ready to handle a credit card, a good, safe way to start is with a secured credit card. As its name suggests, this line of credit is secured by cash deposited in the account. Once your teen has proven to be capable of handling the line of credit, consider allowing them to open a regular credit card account. But you should still make sure that you review the rules of responsible credit card use with your child and the speed with which interest expense can add up.

Seizing the Moment

Children of all ages are eager to beg for the latest gadgets and other “hot” items, but they’re not always wise to all of the costs. Seize this “teachable moment” and you can help them learn how money really works.



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