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Your Child's Financial Future Starts Today!

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Start Now, Its Almost Never Too Early

A child's financial education should begin as soon as possible; the sooner the better.

You can start to help kids make responsible financial decisions before they even know what money is. Start with any material object. When you give your 2 year old a treat, the closest thing to wealth they know, suggest that he or she can eat it all now or eat some and save some. Now a two year old will probably always choose to eat it all now, and that's ok, just keep reminding them that they have a choice and how things change depending on which choice they make.

When they are older and start to want to get things when you go to the store, give him or her some money, telling them that it can be used in any way, with the reminder that something little can be bought now or the money can be saved for something better. Initially the money will be spent now, but the lesson is still there.

This is all before the allowance time comes! By the time the allowance enters in your son or daughter will already have a sound foundation.
Important!

Allowances:

Kids can't learn to handle money wisely if they don't have any to handle.

Allowances Are A Must!

Allowances should begin by age five, before if you feel your child is ready.

1. Be clear about what the allowance is to cover. The younger the child, the less will be expected. A five year old may only pay for treats at the store, a twelve year old may have to pay for all non-family recreation, a 15 year old may have to buy clothing.

2. Make sure that it is enough to cover a reasonable amount with a little discretionary money for saving or giving.

3. Involve the child in the negotiations, with you as the ultimate arbiter.
Important!

Loans:

Borrowing from you, with interest and at risk collateral, is the way to learn about the consequences and value of credit.

Yup You Have to Loan Your Child Money

That way they learn before the stakes are too high. Foster Cline tells of a visit with a woman who collected her child's Game Boy, forever, it was gone. It had been collateral on a loan he defaulted on. This seemed a little strict even for Cline. When he asked her about it she replied, "He borrowed money and didn't make his payments. Better he lose his Game Boy now than his car when he is 25."

1. Always charge interest. It should be fair, but enough so that your child understands that by borrowing he or she is earmarking money to someone else, money that won't be spent for them.

2. Always have collateral. It should be something the child values and if they are repo'd they won't get it back, ever.

3. Seal it all with a written contract. That way there will be no argument about the agreement, and its just like a real loan.

What Steve Martin Learned from Borrowing from Dad

Born Standing Up: A Comic's Life

Born Standing Up: A Comic's Life

by: Steve Martin

Amazon Price: $6.90 (as of 06/02/2012)Buy Now

On page 26 he tells us that he was so haunted by owing his Dad $5 that he has never as an adult bought anything on credit.

Hopefully, your dynamics will be different, but loaning your kids money will help you teach them how to use credit wisely or not at all!

Important!

Work:

There is no money like the money you earn.

There Is No Money Like Earned Money

Your child gets an allowance as a benefit of being in the family, just as he or she does basic chores as a responsibility of family membership. Just remember that you don't have time to pay allowance when the chores aren't done.

But earned money is something else.

1. Make sure your teenager's job doesn't interfere with grades or family, but other things, such as social life, are his or her decision.

2. Big projects around the house can be used as paying jobs, this works very well for young kids especially. Just make sure that the expectations are clear. If he or she thinks that mowing the lawn is just passing the mower over the grass and you think that it means weeds and trimming, everyone is going to be unhappy. A contract wouldn't hurt here.

3. This is a good time to encourage entrepreneurship. If he or she is interested, and has something to buy, help them figure out a business such as mowing lawns, babysitting or something else of value.

When your children buy things with money they have worked for you have a great way to get them to think about buying things. When they want something, ask them how many hours they had to work to get it. Ask them if what they want is worth that many hours of their time. This is a way to frame the decision that really hits home.
Important!

Family Finances:

They can learn watching you.

Kids Can Learn From Your Finances

Let them sit in on some family discussions. Check out the third video, it has some great help about how to do that.

1. Let them sit in on finance discussions, such as whether to buy a new car or fix the old one.

2. Let them give opinions as long as they understand that the final decision is yours.

3. Let them participate in solving some family problems. For instance if everyone wants to go to Disneyland, but there isn't enough money, let them talk about what they will sacrifice to make it possible.

Visual Help

I was shocked at how few videos there were about kids and money. However, these three are very good.

1. A interesting video from New Zealand about the 'moon box' method of saving.

2. Charles Schwab's daughter on teaching kids about money.

3. Excellent video about explaining your financial situation to kids.
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Important!

Saving:

Let them know about saving, then let them decide what to do with it.

Saving Is Essential

The child should have control over the saved money. That is how they learn to treat it responsibly.

1. If the child wants to blow it on arcade games, he or she will either learn that it is fleeting and that was a bad choice, or will like it and do it again. Its his or her money. To really bring this lesson home, you may want to forego giving things like bikes or expensive electronics as gifts. Figure out something like gifting them 1/2 the money once they have saved the other half (or third, whatever you think).

2. You might want to find a way for a different kind of saving. They may not have enough money to open an account, but you can ask if he or she wants to buy a share of a stock that you own, thus learning about investing.

3. If the child has a goal for something big like a bike or later a car, you may want to match funds, remind them that is like a 401K, to get them used to that concept.
Important!

Giving:

They can give however they want. They can give their money, their time, make a fund raiser. Just remember, this is an important part of their financial education.

Children Can Learn the Benefits of Giving.

Help them see that one of reasons to have money, certainly wealth, is the joy of giving.

1. From an early age a child can learn to put a penny in a box for people who need it. Just make sure the child has some connection to the receiver, even if it is just a picture of a child in Peru.

2. Older kids can learn how to raise money. This activity helps them learn about giving, but also teaches the fundamentals of entrepreneurship.

3. Take the kids to a project, such as a Saturday with Habitat for Humanity teaching that there are lots of ways to give.

Making the Simple a Little Easier

This plan is simple, but it isn't easy. Foster Cline, who has worked with some very difficult kids and adopted kids of his own, has written a book that will help simplify.
Parenting With Love And Logic (Updated and Expanded Edition)

Parenting With Love And Logic (Updated and Expanded Edition)

by: Foster Cline, Jim Fay

Amazon Price: $13.60 (as of 06/02/2012)Buy Now

The plan in this book works for all kids. Stick with it and your life will change.

The New Library Saves Money, Time and Space

1. Books cost less

2. You don't have to spend time deciding which books to take. Take them all

3. No need for walls of book shelves.
Kindle: Amazon's Original Wireless Reading Device (1st generation)

Kindle: Amazon's Original Wireless Reading Device (1st generation)

Amazon Price: $50.00 (as of 06/02/2012)Buy Now

Any Purchase Here Will Contribute to Heifer International: The Pay It Forward Entrepreneurial Charity

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Lets Hear Your Ideas About Kids and Money

and the lens, of course, stars welcome!

  • momsfunny Dec 5, 2011 @ 12:35 pm | delete
    Wow, great tips! I will be sure to use some. Thank for sharing!
  • Sep 12, 2011 @ 12:39 pm | delete
    Interesting
  • sousababy Aug 26, 2011 @ 6:57 am | delete
    Yes, start them young with the truth about saving and paying for things when you can afford them. Living within our means is very freeing . . hope to keep my child from being a slave to paying down interest and credit card fees.
  • whirlwind Jun 11, 2011 @ 2:50 pm | delete
    Hello Margo_Arrowsmith. I like your lens "Your Child's Financial Future Starts Today!." Great advice; Thank you for sharing!
  • rwoman May 7, 2011 @ 2:49 pm | delete
    My 10-year-old has a bank book (OK, a little note book) where he gets credits for his allowance etc. and then has to debit when making purchases.
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Pleasant Valley Has Two Great Ideas!

Reserve special "family days" where the family goes on short day trips or even stays at home. The TV and PC must be shut off, and this presents the opportunity to hold interesting conversations or work on a creative project.

Cont' in Guest Book !

My Blog, Come Talk About Money and Business

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Margo on Parenting and More

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Table of Contents

  1. Allowances:
  2. Allowances Are A Must!
  3. Loans:
  4. Yup You Have to Loan Your Child Money
  5. What Steve Martin Learned from Borrowing from Dad
  6. Work:
  7. There Is No Money Like Earned Money
  8. Family Finances:
  9. Kids Can Learn From Your Finances
  10. Visual Help
  11. Saving:
  12. Saving Is Essential
  13. Giving:
  14. Children Can Learn the Benefits of Giving.
  15. Making the Simple a Little Easier
  16. The New Library Saves Money, Time and Space
  18. Banks
  19. Bid on Banks
  20. Lets Hear Your Ideas About Kids and Money
  21. Pleasant Valley Has Two Great Ideas!
  22. My Blog, Come Talk About Money and Business
  23. Lens of Note on Kids and Money and Parenting
  24. Margo on Parenting and More
  25. What Others Are Saying About Kids and Money
  26. Changing the Guard Blog
  27. About Margo Arrowsmith
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Margo_Arrowsmith

Margo Arrowsmith received the "Lens of the Day" Twice

Arrowsmith Printing 9/22/08
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