Teaching Kids About Money: How to Prepare Them for Adulthood
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When you stop and think about it, a parent’s primary responsibility is to prepare his or her child for adulthood. As parents, we’re always teaching our kids to be independent and productive members of society – or at least we should be. That includes teaching kids about money.
On Tuesday, Cat tackled the question of how much financial support adult children should receive from their parents. I’m going to follow it up today by going back a little earlier in the parenting process to consider how parents can prepare their kids for financial independence.
Teaching kids about money involves many different aspects, but I think it’s safe to say that for most parents, the end goal is that your children leave the nest with a thorough understanding of how to earn, save and manage money. Many parents help their children out financially in their kids’ first years of living on their own, and that’s okay in my opinion.
However, the long-term goal in teaching kids about money should be that they no longer need their parents’ financial help. Here are some thoughts about what kinds of things to incorporate into your personal finance teachings for your children.
Independence is the Goal
When teaching your children about money, it’s crucial that they understand that the whole point of the financial education you give them is that one day they are able to support themselves financially. I see LOTS of adult children who are supported, at least in part, by their parents.
And while this isn’t necessarily a “bad” thing, I think it’s important that children are taught that eventually they will have to be responsible for their own financial well-being. This can be done gradually at home by implementing a few simple exercises.
First, pick a subject from the arena of adult financial management to let your child test the waters with. Our 14-year-old will soon be given a monthly clothing allowance. We will give her a certain amount of cash each month for clothes, but then we will no longer be responsible for buying her any clothing at all.
The goal is to teach her to set aside an amount of money each month for every financial need and want in her life.
In the case of her clothing allowance, it’s her responsibility to learn that she shouldn’t blow her clothing allowance each month on the latest and greatest new shirt, lest she need socks and underwear, or a winter coat, in a few months, and find herself without the funds to purchase those items.
This could end up being a tough learning lesson for her if she manages her clothing allowance incorrectly, but we’d rather have her learn those tough lessons under our roof, with the end goal being that she leaves home smart enough and responsible enough to manage her money in a way that will provide for all of her needs, both current and future.
Learning exercises such as this will help your child to understand that money is a finite resource and that it should be managed wisely and prudently.
Keep the Big Picture in Mind When Teaching Kids About Money
Another great exercise to implement when teaching kids about money is more of a “big picture” exercise. On our oldest daughter’s high school transcript for her sophmore year (we home school) is a class that will give her a first-hand account of how to manage money on a big-picture scale. For an entire 12-month period, she will manage (with our supervision, of course) all of our family finances.
Each month, we’ll be giving Maddie a list of the bills that need to be paid, and we’ll hand her the checkbook and the password to the online checking account. Maddie will be responsible for recording my husband’s automatic paycheck amounts, and paying the bills accordingly, deciding who gets paid and when they get paid, how much we can spend on groceries, entertainment, and the like.
Managing household finances and paying an expansive set of bills requires training and certainly falls under the category of teaching kids about money. By having Maddie manage our household finances for a year, we can help to prepare her for the day when she has her own household finances to run.
Right now, our kids are required, for any income they get, to put 10% into a giving account, 10% into a savings account, and to manage the other 80% how they please. By allowing Maddie to run our finances for a year, we’ll be able to teach her how to manage money on a bigger scale with bills to pay and food to buy.
Then, when she decides to fly the coop and live on her own, there won’t be any surprises when the electric bill arrives for the first time and she’s spent all of her money on take-out pizza.
Teaching kids about money so that they are prepared to support themselves and manage their own money wisely can seem like a daunting goal. With a bit of forethought and creativity, however, you can make sure your child knows most all of what they need to know.
How much did you know about managing money when you first moved out on your own? What do you think is important and necessary to teach kids about money before they leave home?
Photo courtesy of: MIKI Yoshihito
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