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Teaching Kids to Be Money-Smart

The money lessons your children should know

When raising your children, it’s only natural to want to do right by them. And one way to do that is to teach them essential life skills, like being financially savvy. In fact, many adults run into financial troubles simply because they weren’t given any lessons on finances at a young age.

“The majority of the clients we serve always say, ‘I wish somebody had taught me this when I was younger,’” says Jessica Cecere, regional president of the South Florida branch of CredAbility, a national nonprofit credit counseling and education organization, who helps clients develop budgets.

That’s just one of the reasons it’s important to share money lessons with your kids before they have a chance to experience any financial hardships of their own.

“While schools can reinforce these lessons, it really needs to come first from the parents,” says Cecere.

Here are some tips to keep in mind when teaching your youngsters to be money-smart:

The earlier, the better - It’s best to start a finance discussion when your children are young, before they actually are required to manage their own money.

“When children are 5, 6 and 7, they can’t really understand the idea that one day something may happen, and you may need to rely on your savings,” says Cecere. “But if somebody has a habit of saving and they always have, they will get that when they need it.”

So how do you explain this in terms they can understand?

“Begin by explaining to them why you work—to make money for the family,” says Stephen Rhodes, a CFP and managing partner at Strategic Partners Wealth Management in Creve Coeur, Missouri. “Explain to them the reality that the items they use each day all cost money, and you must work to make and save enough to make sure all things are paid for.”

Take them on family shopping trips - This may sound like a nightmare if your children are known to throw temper tantrums over what kind of candy they want, but if that’s so, it’s all the more reason to bring them. Experts suggest trying a farmers market first.

“Send (your kids) to one section of the market with a list of fruits and vegetables that you want and give them $20 to spend,” says Cyndi Finkle, a mother and blogger for “Practical and Meaningful.” “They will ask questions of the vendors, figure out how much of each thing they can get and start to understand the principles of money.”

Avoid the temptation to run to their rescue - When they grow up, they won’t necessarily have someone to bail them out if they’re low on cash, and that’s something they have to learn the hard way.

“If, for example, your child was saving for a big purchase but does not have all the money, don’t give in and give it to him or her. Instead, make sure they work for it or, dare I say it, make them wait,” Rhodes explains.

If it’s a situation when you feel bad not helping out, “[l]end them the money and then explain that when it is paid back, they will have to pay you more,” Rhodes suggests. “Helping them to learn the discipline of money management while they are children making only $6 is far better than [their] learning as an adult when they are making $60,000.”

Lead by example - Monkey see, monkey do. Chances are, if you practice good money habits, so will your offspring.

“Be a role model,” advises Richard Bavaria, Sylvan Learning’s senior vice president for education outreach. “Show how you have a savings account, how you shop wisely, how you’ve put off your own wants until you can afford them comfortably, one at a time. Postponement of pleasure is a grown-up characteristic, learned from grown-ups.”

And don’t just do it and hope your kid notices—point out your good financial skills whenever you can.

“You have a budget and spending priorities. So should your child,” Bavaria says. “Show how you set up a budget and stick to it. If you’ve had money troubles in the past, tell your child how it made you feel and the difficulties it caused. Talk about your work and how your salary is based on the work you do. Show how your earnings reflect the health of your business and the economy. If your family is enduring a difficult time, find a way to talk about it in an age-appropriate manner.”

Offer an allowance—with some rules - Don’t just shell out $20 a week for no reason—make your children work for it. Depending on their age, you can give them guidelines like if they make their bed, make the bus for school on time or finish their veggies all throughout the week, they earn the full amount you’ve allotted them—but if they don’t, they get less. You might also tell them that they can use their allowance for whatever they want, but once it’s gone, they don’t get any more. That will teach them to have their own financial responsibilities, and will also eliminate arguments when your child asks to buy something; you could simply ask them how much of their allowance they have saved. You can make whatever rules you’d like, so long as your child recognizes the value of a dollar.

Teaching children to be financially responsible and money-smart can have a lifelong impact, so get started today.

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