As parents, we make all kinds of sacrifices for our children, from covering countless childhood expenses to helping an older child during his or her own financial challenges. One of the greatest satisfactions of being a parent is having a child become a financially responsible adult who can stand on his or her own two feet. This means, paradoxically, that we have to do more for our kids, in the way of financial education and empowerment, and less, in terms of sacrificing our own financial well-being for the sake of our children.
Teaching children to become money-wise can be challenging. Here are some helpful tips for raising financially smart children of all ages:
Cultivate the early awareness of money by giving your 4 or 5 year old a small allowance. Explain that money has various uses – for spending, saving, or giving – and reinforce this concept by designating three jars or piggy banks for these purposes.
Elementary school age and pre-teens
Open up a savings account for your child, making sure there are no account fees or minimum balances. Let your kids carry small amounts of cash so that they learn what things cost and master the mathematics of transactions.
Provide an allowance for personal items and teach teens to use a budget to manage these funds. If appropriate, it’s a great time to set up a Roth IRA as a first lesson in long-term, retirement savings.
College students and young adults
Introduce your children to your financial advisor and accountant, and ask these professionals to spend an hour or so providing some basic counsel on investing, money management, and taxes. Get your college-bound student fully engaged with the finances of higher education, including creating a contract with your child for expenses you will be financing, outlining expectations and any repayment terms.
Adult children with kids of their own
Respect their independence and financial choices. If you offer help, consider paying for a professional to guide them out of trouble, rather than you using your own resources to make things “all better.”
Taking action on any one of these approaches to teaching children about finances – let alone trying them at every age – involves a lot of effort and patience from already busy parents. But the benefits of financial literacy and careful planning help position both parent and child for long-term financial success.