A practical plan to teach your children to save wisely
Most people would agree that it is increasingly important for children to learn about the value of money and proper money management skills from an early age.
Whether these lessons come when they are 7, or 17, these skills will build the foundation for a child’s financial future.
The surprising truth is…
Many parents are surprised that their children don’t understand or appreciate the value of money. Meanwhile, the child has never held a summer job and simply “earns” the right to their parents’ credit cards and an allowance.
Although a CPA can explain financial concepts to children, it is extremely important that a child’s parents are actively involved in teaching their children the value of money. The foundation of a child’s financial knowledge always begins with their parents.
Some financial knowledge that teens must learn include:
how to manage money
how to keep track of the money they make
how to set goals and plan for the future
how much money to set aside based on what they want to do
Since children will have more free time while they are out of school, the best place to start with these lessons is with a summer job.
When parents sit down and implement the following plan with their teenage children, they are surprised by how much they learn themselves.
1. Set Objectives/Goals
Begin by setting objectives with your child. What do they want to save up for? How much money will this cost? Then, set goals for how much money they would like to save by the end of the summer, and how much money they will need to set aside from each paycheck in order to reach this goal.
By setting a specific goal, they can formulate a plan of action for how they will reach that goal.
Since it is estimated that over 85% of the adult population has no financial plan and very few have any savings at all, it is amazing how many parents actually take away an important lesson when they practice this exercise with their children.
2. Determine Allowance
Before giving them an allowance, ask:
What do you want them to buy on their own?
What options do they have as far as what they pay for? (Obviously, they can’t pay rent, but they could pay for gas and their clothes.)
Many parents provide children with a clothing allowance, a gas allowance and some spending money. Then, where the allowance falls short is up to the child.
Many years ago there was discussion that the Rockefellers felt your allowance for the week was equivalent to your age. For instance, 16 year olds got 16 dollars a week.
As a parent, you should take into account what your child’s controllable expenses are in relation to the allowance they receive.
However you decide to implement an allowance, kids with summer jobs learn to manage their money wisely because they see the value of money.
By the end of the summer
Your child will learn many important financial lessons from this exercise, and you can feel good about passing on sound financial wisdom to the next generation of your family.