When you’re a kid, a few dollars can seem like all the money in the world. It can take weeks, sometimes months, to save up your allowance. When you finally decide to spend it, you might realize that $10 or $20 isn’t as much as it seems.
At some point it clicks for children— their home, toys, food and almost everything else comes at a price, and earning money to put towards those things takes time and effort.
As a parent, you can help your children build important money management skills by providing experiences for them at a young age. Leading by example is a good way to start, and it can help instill good values and money habits. However, you’ll also want your children to get their hands dirty. Each lesson is a chance for them to try, fail and try again without putting too much money on the line.
Open up your books. The value of money is a lesson you learn over time. For young children, games or activities that help them identify coins and bills could be a good place to start. Older children may be ready to see how much things really cost. Going over bank or credit card statements, you could explain why you made each purchase and look for savings opportunities.
You can also turn a monthly bill into a teaching moment. Children might not realize how leaving the lights, heat or AC on can affect your monthly bills. To get them thinking about utility costs, you can sit down together and compare each month’s bill to the bill from the previous year. As an incentive for them to save energy and money, if their changed habits can help show savings over a certain time period, you could offer to set aside the difference and put it into a savings or investment account for them.
Even without direct financial incentives, the practice of reviewing and comparing bills can help children understand that their actions have financial consequences. They’ll also start to learn how much it costs to keep your home comfortable. That’s a valuable lesson, one I didn’t truly learn until I had my first apartment. You could take a similar approach to the groceries or other monthly expenses.
Help your children earn an income. Knowing the numbers is only part of the picture. It’ll be difficult for children to practice managing money if they don’t have any money to manage. But how, when and why children should receive an allowance is a debate for many parents.
Giving an allowance to weekly chores is one option. Some parents only offer payment for extra work or accomplishments and require that everyone does chores because it’s part of their responsibility as a family member (you certainly don’t get paid for keeping a clean home). Whether you pay a chore-based allowance or allowance based on other extra work, you could use a personal finance app that lets children see how much they’ll earn for each task. There are a variety of apps designed for different age groups, and some let kids create virtual accounts where they can track their earnings, spending and progress towards financial goals. If your child is aged 5- to 8-years-old, you can help them learn how to identify, count coins and save using the game Peter Pig’s Money Counter.
You can also help children find ways to earn money from outside the family. Organizing a yard sale could be a chance for them to help you clean out the home and practice bargaining. Running a business could also be a good proxy for household budgeting and a valuable lesson in entrepreneurship. Even a lemonade stand or bake sale requires that they buy supplies, work to earn money and put aside some of their earnings to pay for more supplies later.
Make your kids responsible for their bills. With a steady income comes increased responsibility. Make teenagers the boss of a bill, with real consequences for late payments.
The mobile phone or internet bill could be a good place to start. Figure out an appropriate portion for them to take on and require them to pay you each month. If they’re late, they lose internet access or their phone until they can pay their balance. When they don’t have enough saved to pay the bill, offer work opportunities for them to make money.
Once they take responsibility for their first monthly bill, you can also share how you manage the household’s finances. Show them what it’s like to keep multiple bills organized each month, make payments by writing checks or setting up auto-pay. Then explain how late payments can lead to fees, affect your credit and (just like with their phone) get services shut off.
Bottom line: Understanding how much it costs to manage a home and the importance of paying your bills on time can help you avoid costly mistakes. Some people learn these lessons once they’re at college or living on their own, but you can help give your kids a leg up by taking a proactive approach to their financial education.
Nathaniel Sillin directs Visa’s financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.