One of the greatest things about childhood is the ability to live a largely carefree lifestyle. Food is prepared by parents, clothes magically wind up in dresser drawers with little to no effort, and money seems endless. As we age, we all find out the reality; every process in life requires effort to achieve an outcome. If you want breakfast, lunch, and dinner, you are going to have to make it or pay someone to do so. It is your job to go to the store and buy new clothes, not to mention clean and fold them each week. The harshest dose of reality is the realization that money is not endless and must be earned. With millions of American children out of school for the summer months, there is no better time of the year to keep their minds sharp by providing practical lessons about the value of money.
Lead by Example
The best way to teach your children anything is to practice what you preach. If you want your children to respect the power of money, both its buying power and the debilitating power of debt, you should lead by example. Explain the simple things to them about money, such as the effort you and your partner put in each month to earn income for the family. Take the kids shopping with you so they can see the true cost of things. It is also not a bad idea to tell them how you manage your finances and what guides your decision-making
Let Them Earn Money
The concept of providing children with an allowance offers a very slippery slope toward financial ignorance. Your children should never get money each week and each month just for "showing up" around the house. Allowance should not be given; it should be earned. Dave Ramsey suggests treating allowance more like a commission. If your kids want money, make them earn it. You can set fee charts for little chores around the house, such as taking out the trash, cleaning their room, and mowing the yard. It is important for children to learn that even at a young age, money must be earned. There certainly will not be paychecks offered in the future just for showing up.
Get Them on a Simple Budget
In the first point, it was mentioned that you should talk to your kids about how you handle money as part of your effort to teaching them about money this summer. If you really want to drive that point home, set them up with a simple budget. Just focus on their income and some typical expenses the average child might incur for fun. You can show them how much they could make in a certain month for performing different chores around the house. Then you can lay out the cost of new toys, video games, clothes, or other accessories. This way your children can see how much money they really have and how quickly it can run out if purchases are not managed properly.
Teach Them About Credit
No discussion on budgets would be complete without touching on the concept of credit. Your kids may notice quickly while out shopping with you that you did not buy the groceries with a paper check or cash. Most Americans pay for groceries on their credit card. Help your children understand how credit works, how it should be managed, and the pitfalls involved if it is poorly managed or abused.
Stress the Importance of Giving
Finally, remind your children that there is value in donating some of their hard-earned money. Not every child is fortunate enough to have parents who can afford to buy them things, much less pay them for performing simple chores around the house. Parents Magazine recommends teaching children the value of sharing their money. This way they can learn at an early age how money can be used to help others rather than simply satisfying their own needs.
The views expressed are not necessarily the opinion of Social Advisors, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.