How to Raise Financially Responsible Children

Money Savings PotTalking about finances can be extremely uncomfortable, especially when it comes to your children. We all want to create a bubble around our children, to keep them from having to deal with the harsh reality that is finance. What’s interesting is that despite feeling this way, most of us agree that we want our children to be financially responsible. It’s a bit of a contradiction, but still very true.

When it comes down to it, it’s much more important to teach your children about being financially responsible than it is to shield them from the responsibility of finances. Of course, you want to teach them in little doses, so you don’t overwhelm them. After all, you don’t want your six year old stressing about interest rates and your mortgage. But, by teaching your children a little bit at a time, from the time they’re young, when they go out into the real world, they’ll be better prepared to make financial decisions.

Here are a few of our favorite tips on how to raise financially responsible children.

1. Share Your Finances

We want to put this one first because it’s the most uncomfortable. Obviously, you don’t want to just call your kids into the office one day and tell them everything about your family’s finances. You’ll want to ease into this one.

Sit your teenager down and have a discussion about your finances. Show them what the family budget is for each month. This is a great introduction to how to responsibly use and save money. A little bit later, you can show them a few bills and have them work out how the budget covers these bills. If you want to take it an extra mile, you can even put them in charge of keeping track of and sending in money for a bill. One that actually means something to them, like a phone or cable bill, will make the biggest impression.

You can leave it at that or slowly add responsibility until your teenager is just as competent as you are when it comes to dealing with the household finances.

2. Give a Financial Project

This is another one that’s good for older children. If you have pre-teens or teenagers in the house, you can use their wish-list as a lesson in finances. Next time your child asks for something that’s a rather big purchase, tell your child to do the research for the item.

For example, say your child wants a new phone. Instead of going to the store and buying one, tell them to do the research for five different types of phones and different phone plans from different companies. Ask them to factor in accessories and insurance. If you’re able to purchase the item they want, when they’ve done the research, go over what the best choice is and then go get it. This will help children learn the value of money and appreciate the items purchased with this money.

3. Encourage Saving

If you give your child a weekly or monthly allowance, encourage them to put a little bit away whenever they receive this money. You can create graphs and charts to explain to them the idea of savings and putting a bit away. If they have something they’ve been wanting to buy, but their allowance doesn’t cover the cost, work out how much they would have to save every month to get it.

You can encourage this behavior by starting a family ‘saving’ account. Promise to put aside a bit of your money each month, too. Set a specific goal that this fund will be for, like a special night or, if you have big dreams, a family vacation. Encourage your children to put some of their own money in this fund, too. Keeping track of how close you’re getting to your goal can be an exciting time for the entire family.

4. Let Them Plan

A fun and educational way to teach your children about the worth of money is to give them a budget and tell them to plan something for the family. It be something as simple as a night out or a family dinner. The point is to give them complete freedom on this project. Allow them to look at the prices of different things. If they plan a family dinner, give them the money and take them shopping for the supplies. If they’re too young to cook themselves, charge them for your services. If they can cook themselves, let them do it. That’s two life lessons all in one go!

5. Offer a Line of Credit

Finances aren’t all about being responsible with the money you have, but also about borrowing money wisely when you don’t have it. Instead of giving your children money whenever they ask, charge them interest next time. It doesn’t have to be an exorbitant amount, just enough for them to realize that interest and debt are serious parts of financial responsibility.

If you want to extra harsh about them paying you back, you can take away a privilege if they miss a payment. This might be a bit too much for younger children, but it could be a valuable lesson for teenagers.

6. Invest in Their Ideas

Part of being financially savvy is being able to think outside the box. If your child has a good idea that could result in them making a little money, offer to invest in their ‘business’, for a percentage of the equity, of course.

For example, if your child wants to sell lemonade or cookies, offer to buy the ingredients if you get a percentage of what they make. This will teach them a quick lesson in being an entrepreneur and in investors. While they might not want to be entrepreneurs down the road, having this background will always be a help to them.

7. Encourage Work

Your children probably have plenty of chores that you require them to do on a weekly basis. If there are a few things that slip through the cracks or that you could use a little extra help on, offer monetary rewards for when they complete these tasks. This will help teach your children that it takes hard work to get money. This is an especially good idea during the summer and holidays, when there is plenty of free time and there are probably a few extras that your children want, but can’t afford on their allowance.

8. Go Online

As your children prepare to head off to university or get part-time jobs, it’s even more important for them to understand how crucial it is to be financially responsible. If you want to teach your child to fully grasp using money, there are plenty of online programs that you can use to help.

Our favorite program is Determining Your Budget by TheMint. Using this program, your children can pick a job that they’re interested in. They are then provided with the average starting salary for that particular position. Then they have to create a budget using that salary. They’re required to take out taxes and pay monthly bills, like rents and utilities. The program even has unexpected expenses, like getting sick and being unable to work or having to pay to fix a car. This is a great way to show your children the reality of working and budgeting.

9. Let Them Make Mistakes

This is a hard one. As parents, if there was any way to keep our children from ever feeling regret or disappointment, we would do it in a heartbeat. However, some lessons need to be learned from experience. While teaching your child about finances, be prepared to step back and let them make mistakes.

Financial mistakes can come in all shapes and sizes, from spending allowances on frivolous things to overpaying for a new phone. You shouldn’t allow your children to get into a deep financial hole, like spending all their savings on a car with a bad engine, but you can let the little ones slip by you. It’s better for them to learn from these mistakes now, while you’re still around to comfort them, then it would be if they were off on their own and too embarrassed to tell you.

Plus, little mistakes now mean fewer big mistakes down the road. Hopefully by preparing them from a young age to be financially responsible, they’ll make smart choices as adults. And they’ll be nothing but grateful for the lessons you gave them as children.

What is the Verdict?

MoneySavingPigWhat experience have you had trying to pass on your financial wisdom to you Children? ...and more importantly did it work? Do you think the above will be useful? We love feedback so please use the comment section below.

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