How To Teach Children to Manage Personal Finances the Healthy Way
Why is it that
many parents refuse to teach their children
how to manage money the right way? One reason
could be that the parents attach some kind
of emotional association to money so that
they become afraid of money or teaching money
management to their children. Some parents
feel guilty about the fact that they have
not handled money well (which explains why
their family is always needy.) Other parents
may feel disappointed that they have not been
able to build a sizeable nest egg that they
can use for their retirement. Yet others may
be afraid of making a mistake at some point
that will cost them their dream of being able
to send their kid to college. And yet, personal
financial management is very important and
all children should be taught about it from
an early age onwards.
To be truthful about it, children do get some
kind of personal financial planning skills
just from their ordinary standard school curriculum
involving arithmetic and mathematics. These
skills could be inclusive of how to tell what
interest rates you stand to earn, how to compute
for percentage, how to set up the right kind
of budget, and how to balance checkbooks.
And many parents would really prefer it if
the school were to teach the more advanced
personal financial management skills as well,
later on in the higher school levels.
But the truth is, parents also have that responsibility
to teach their offspring how to manage personal
finances using the right personal finance
tools. Here are five ways that parents can
provide personal finance advice and personal
finance help to their own children:
First, never rely on money to show your love
or be a substitute for actual human love.
Some parents opt to simply buy gifts when
they feel guilty about neglecting their children
(or feel they are neglecting their children.)
Children who receive gifts rather than actual
love may come to believe that you can only
show love by spending money.
Second, always be realistic when you observe
that your child has a problem with managing
money. It seems that there are children who
take to saving money like a duck to water;
while other children may fritter away their
allowance on unnecessary things until nothing
is left. Most children fall into the middle
ground between these two polar opposites.
Though this may seem like a formidable problem
for you to deal with, you should try to find
ways to help your child manage personal finances
better. You can do this by identifying their
personality weaknesses and figuring out what
problems could result from such weak parts
of the psyche of your child.
Third, allow your child to be able to experience
how budgeting properly works. Give him an
allowance that is perfect only for his current
needs, dissuade him from asking for an extra
allowance, and tell him about the dangers
of getting into debt with other people. You
may then propose to your child that he can
earn extra pocket money if he does. certain
chores for you or other people. This may be
useful if your child likes certain things
like video games but cannot afford that on
his school allowance.
Fourth, a child who is eyeing an expensive
toy in a store will probably not understand
how hard it is to earn money for that toy
– rather, all he knows is that he wants
that toy badly. Here you can insert a bit
of personal financial management as well.
You can opt to buy the toy but let your child
pay for it in increments by earning money
through chores; and you can hold on to the
toy while the child is still paying for it.
This is a sound way to impart the lesson of
being prudent with how you manage personal
finances and the reward that comes afterwards.
One way that can motivate your child to manage
personal finances in a systematic way is for
you to open a bank account in his name. This
is usually appropriate for kids who are at
least 10 years of age. It would be good to
take the child to the bank so that he can
see how bank accounts are opened and how a
deposit can be made into his own account.
Some parents treat this as a reward for children
who have done particularly well in school
or who are already at a certain age. Not only
does it serve to mark a milestone in the life
of the child, but it teaches valuable lessons
in the work/reward equation.
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