Six Simple Financial Lessons to Teach Your Children

In today's difficult economy, early financial awareness is more important than ever. If children have begun to master these concepts by the time they reach adulthood, they will have a greater chance of monetary stability as they enter the complex world of bills and employment.

1. Avoid Spoiling Your Kids

Don't just give your kids everything they ask for. From an early age, impress upon them the value of a dollar and the need to be discerning with purchases. If you give in to all of their requests and demands, they will have an inflated sense of expectations, which leads to entitlement and obnoxious behavior, as well as bitter disappointment, when they realize that the rest of the world will not be so accommodating. Say "no" firmly on a regular basis.

2. Make Them Buy Their Own Toys

Give them suggestions for how they might earn the money to buy what they want. Draw up a list of chores such as mowing the lawn or cleaning the basement, along with what you're willing to pay them. Older children can babysit or do odd jobs for neighbors, and teenagers can apply for part-time and summer work in retail, fast food and other entry-level positions. It's up to you to decide if they should be paying for all of it, or just a percentage, but letting them help buy their own toys helps them understand money management better.

3. Teach Them How to Budget Their Money

Giving children a small weekly allowance can help give them a sense of what money is worth. Many parents have found success with having their children use multiple piggy banks. Whenever they get money, the children are asked to divide it among the banks. The child and adult can come to an agreement about what the categories and ratios should be. For instance, half of the money could go toward savings, while a quarter of it could go toward a gifts or charitable contributions. The remaining quarter could be spent immediately if desired.

4. Get Them a Bank Account

A savings account is a very valuable tool for children, since they can not only stick their money away in a place where it is safe and somewhat out of mind, they can periodically see how the interest accrues on the money they have socked away. This provides further incentive to continue saving. It's also a good idea to open a checking account, which may be a separate account or the same account with multiple components. Showing your children how to keep a checkbook will help instill in them the discipline to keep track of their purchases. 

5. Warn Them About Credit Cards

While credit cards can be valuable tools for building a good credit rating for the sake of renting or buying vehicles, property or other high-ticket items, in most cases, it is best to avoid using them. Impress upon your children early on that they should only spend money that they actually have. Many young adults are enticed into signing up for credit cards and then spend like crazy, amassing large amounts of debt in a short time.

6. Remind Them Money Isn't Everything

As they get older, children may grow very frustrated that they don't have the money to buy all the things they want. Encourage them to live as simply as possible and remind them that many of life's greatest joys lie in free experiences such as time spent communing with nature or playing board games with one's family. The more they learn to appreciate these inexpensive pleasures, the less likely they will be to covet items they can't afford.

No matter how well you prepare them, there are some money lessons your kids will eventually need to learn on their own. However, giving them a solid financial foundation will go a long way toward helping them avoid pitfalls in the future.

What are ways you teach your kids about money?

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