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There are many lessons that parents give their children to help them grow into responsible adults. We teach them to be responsible when it comes to sex and to avoid drugs. They learn the importance of hard work through chores. But, a surprisingly large number of parents never teach their children financial basics.
Raising money-smart children should begin early and continue throughout a child’s life at home. Initial lessons need to be further developed and reinforced as children mature. These teachings will help your kids avoid falling into financial traps and will positively impact their stability as adults.
For your children to learn foreign languages and math and literacy, you have to provide them with books and guide them. To teach them to budget, you have to provide them with money and guide them. Typically, this takes the form of an allowance.
An allowance benefits children in a few ways. Firstly, allowances teach children that money is earned through work. Secondly, they are a good way to both teach and enforce good budgeting and spending habits. The amount that you give your children will depend upon your income and your comfort level. Some people advocate giving a child the child their age in dollars each week. A ten-year-old gets ten dollars, but a seven-year-old only gets seven. But, the amounts can be less or more.
At this point, you can begin teaching the old save, share, spend budgeting method. This may also include an invest step if that is something you understand quite well. The typical break down is:
- Save ten percent
- Invest ten percent
- Share ten percent
- Spend the rest as necessary
If you are not teaching your child to invest, the rest would be 80 percent. By imparting these lessons, you teach your children not to live paycheck to paycheck by spending 100 percent of their money.
Some parents simply take the funds for sharing and saving directly out of a child’s allowance and explain the function of that money. While others choose to designate containers for dividing up the funds. One for savings, one for spending, and one for giving. Some go even further and subdivide the money even further. For these parents, there is a jar for sharing; ten percent automatically goes in there for charity. Then, the other 90 percent is divided into instant gratification, medium-term savings, and long-term savings. This lets children make decisions about the importance of purchases and forces them to plan to spend.
When you use buckets that designate instant gratification as well as savings, you teach children they can delay their gratification and save for a goal. This is critical when they later apply for loans or credit cards. Learning about medium-term and long-term savings also helps them to understand that spending isn’t all centered on a point in the near future. When children put savings away for a month or two, they aren’t truly saving. They are simply prolonging spending.
Many adults fail to learn that people need a long-term savings that is a financial cushion in carse of emergency. The sooner in life your children learn that, the better.
When kids get older, you can tach them to track their spending to determine how much they spend on non-essentials. Most parents cover necessities, like food and shelter, and children use their allowance money for extras. When children know that they are the ones buying extras, they tend to spend differently. Seeing their expenditures is a great way to help them control the amount they are spending. This helps them avoid living beyond their means later in life.
Bio: Arthur Henderson is a writer and child development expert who has two wonderful sons. He has been divorced twice and knows how vital it is that children to know the benefits of budgeting. He has also worked with numerous groups in treating meth addiction and other drug related problems.