As kids watch the adults in their lives use money, they catch on to its importance money has in life. The best way to instruct your child about the significance of a dollar is by showing them the many ways the dollar is used.
Begin When They're Young
Begin explaining to your child how money works from a young age. It's important for kids to know you get money by earning it. Items (or services) in life are given in return for money, and the value or worth of that item varies according to the seller. If you do not have enough money, you can not purchase the item.
A follow-up to this is talking about saving money. A child with a couple dollars could go buy a piece of candy (that'll be gone in 10 seconds) or an inexpensive toy (that will be broken in 10 minutes or completely forgot about the next day). However, if that child decides to save those dollars, a better item can be purchased that may have more meaning and last longer.
Have A Savings Plan
To develop a savings plan, help them decide on a percentage they can save each time they earn money. Ten percent is a good amount to work with since all they have to do is move the decimal point one place to the left. That will help them to see that for every dollar they earn, ten cents can be saved. You can also show the other examples too.
Make sure that they know that the account is not for the better short-term item, but for a "rainy day", a car or even their college fund. With the remaining 90% they get the candy or "better item" that you previously told them about. This principle is a good way to teach the about child being discipline and saving for long-term savings; like when they want to buy a house or retirement when they're grown.
Sure, a six-year-old won't understand the "rainy day" concept, and driving in ten years may be discouraging. But after saving 10% over the years, it'll add up. This teaching is especially helpful when they get their first job and are already in the habit of saving that 10% for long-term use.
You can also share with them about putting some money to the side to give to a charity they are interested in. Concepts like this teach them even more about managing their money.
As Your Child Grows
Once your child is old enough, take them down to the bank to open a savings account in both of your names. Take them to the bank once or twice a month to put so that they can deposit their savings. When the bank statement comes sit them down and show them how money is grows with the help of interest.
It is a good idea for them to know that interest is a big part of saving and spending. With interest you either pay more or earn more; it all depends on what the interest is for. It is a good idea to show teenagers that if a debt is not paid for in 30 days, they will end up paying more for an item than the purchase price.
A good way to prove how unfavorable or great interest can be is by role-playing. Find an item your teenager wants to use a credit card to pay for. Create a chart showing how making only the paying the minimum changes what the total debt is, how long it will take to pay the debt off with minimum payments, and how much interest (or money lost), is paid in total.
You can even switch it by taking the number of months it will take to pay off the debt verses the interest they would earn with a savings account if they save money for the item they want. The amount of interest may not be much, but you want them to see that if you save money to purchase the item, you pay only that amount and there will be no interest to pay along with it.
When children understand how money works they'll (hopefully) be more inclined to use responsibility when making money decisions.
Begin When They're Young
Begin explaining to your child how money works from a young age. It's important for kids to know you get money by earning it. Items (or services) in life are given in return for money, and the value or worth of that item varies according to the seller. If you do not have enough money, you can not purchase the item.
A follow-up to this is talking about saving money. A child with a couple dollars could go buy a piece of candy (that'll be gone in 10 seconds) or an inexpensive toy (that will be broken in 10 minutes or completely forgot about the next day). However, if that child decides to save those dollars, a better item can be purchased that may have more meaning and last longer.
Have A Savings Plan
To develop a savings plan, help them decide on a percentage they can save each time they earn money. Ten percent is a good amount to work with since all they have to do is move the decimal point one place to the left. That will help them to see that for every dollar they earn, ten cents can be saved. You can also show the other examples too.
Make sure that they know that the account is not for the better short-term item, but for a "rainy day", a car or even their college fund. With the remaining 90% they get the candy or "better item" that you previously told them about. This principle is a good way to teach the about child being discipline and saving for long-term savings; like when they want to buy a house or retirement when they're grown.
Sure, a six-year-old won't understand the "rainy day" concept, and driving in ten years may be discouraging. But after saving 10% over the years, it'll add up. This teaching is especially helpful when they get their first job and are already in the habit of saving that 10% for long-term use.
You can also share with them about putting some money to the side to give to a charity they are interested in. Concepts like this teach them even more about managing their money.
As Your Child Grows
Once your child is old enough, take them down to the bank to open a savings account in both of your names. Take them to the bank once or twice a month to put so that they can deposit their savings. When the bank statement comes sit them down and show them how money is grows with the help of interest.
It is a good idea for them to know that interest is a big part of saving and spending. With interest you either pay more or earn more; it all depends on what the interest is for. It is a good idea to show teenagers that if a debt is not paid for in 30 days, they will end up paying more for an item than the purchase price.
A good way to prove how unfavorable or great interest can be is by role-playing. Find an item your teenager wants to use a credit card to pay for. Create a chart showing how making only the paying the minimum changes what the total debt is, how long it will take to pay the debt off with minimum payments, and how much interest (or money lost), is paid in total.
You can even switch it by taking the number of months it will take to pay off the debt verses the interest they would earn with a savings account if they save money for the item they want. The amount of interest may not be much, but you want them to see that if you save money to purchase the item, you pay only that amount and there will be no interest to pay along with it.
When children understand how money works they'll (hopefully) be more inclined to use responsibility when making money decisions.
About the Author:
Laura Nelson-Smith is the resident editor of Career & Finance at http://www.Schmoozins.com - an online magazine for women that gives all women a voice. Join us as a contributor, schmoozer or just hang out a while.
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