Teaching your children how to effectively work with their
money provides them with an important life tool that is essential for their
future success. You can start from an early age to teach them how to
effectively budget, how to save and how to focus on providing for their needs
before spending money on things they want.
Budgeting
Learning how to create a budget and live within it is
arguably the most important financial lesson any kid could learn. Luckily, it’s
an easy one to teach. It’s never too early to start teaching kids to stretch
their finances to accommodate their lifestyles. Start with an allowance that
should cover all the ‘I want’ requests.
Lori Mackey, author of "Money Mama and the Three Little
Pigs" suggests a 10-10-10-70 system for teaching kids to budget.
"When your child gets their first dollar, we suggest
that you teach them to save 10 percent, invest 10 percent, give 10 percent and
live from 70 percent. When you give them a dollar, you give them two quarters
and five dimes and then you sit with them and say this dime is for something
that is important to you or that you want to help," she says. This money
can go to a charity or school drive or to a family member who needs assistance.
The Value of a Dollar
Once your kids start getting the hang of budgeting, give
them some practice. This could mean that they have to take care of their own
budgets. Here you can give them a weekly or monthly budget and they have to use
this to pay for all their own expenses like school lunches and trips,
stationary, internet and phone bills.
You can also allow them to participate in the family budget.
This means they can be responsible for planning the family meals for one week
to fit into a budget. They can also do the grocery shopping so they get a
better idea of what things cost and how much money is spent on day-to-day
living.
Wants versus Needs
An important concept that goes hand-in-hand with budgeting
is the idea of wants and needs. Helping your child to identify the difference
between these is a lesson essential to effective money management. They must
learn to identify their needs and budget to cover these before spending money
on things they want.
Saving
Encouraging saving is a slightly more difficult idea as the
deferred gratification can seem too far away for impatient children. One way to
help is to have a piggy bank or jar. Watching the jar fill with savings each
week is a good visual and tactile representation of the rewards of saving.
It also helps to have a goal to save towards. Start with
short-term goals that are more attainable so that your child gets rewarded
before they get bored or lose interest. Then help them to select bigger and more
long-term goals when they get the hang of it.
Investing
The last 10% of their allowance should go towards long-term
investments like college funds. You can also teach older kids how to invest
their own money so that they understand how to do so for the long-term.
picture:
from Miki
Yoshihito and his link is here: https://www.flickr.com/photos/mujitra/
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