Even before they can count, children already know something about money: it’s what you have to give to get an ice cream cone, or buy a ticket to a ride at a local festival. So, as soon as your children begin to handle money, start teaching them how to handle it wisely.
Giving your children an allowance is a good way to begin teaching them the concepts of money and how to save and budget for the things they want. How much you give them depends in part on what you expect them to buy with it and how much you want them to save.
When it comes to giving children allowances:
- Discuss with your children what they may use the money for and how much should be saved.
- Make allowance day a routine, like payday. Give the same amount on the same day each week.
- Consider “raises” for children who manage money well.
Take it to the bank
Piggy banks are a great way to start teaching children to save money, but opening a savings account in a “real” bank introduces them to the concepts of earning interest and the power of compounding.
While children might want to spend all their allowance now, encourage them to divide it up, allowing them to spend some immediately, while insisting they save some towards things they really want but can’t afford right away. As an incentive, you might want to offer to match whatever children save towards their long-term goals.
TV, social media, and peer pressure constantly tempt children to spend money. But children need guidance when it comes to making good buying decisions. Teach children how to compare items by price and quality. When you’re at the grocery store, for example, explain why you might buy a generic cereal instead of a name brand.
By explaining that you won’t buy them something every time you go to a store, you can lead children into thinking carefully about the purchases they do want to make.
Don’t be afraid to let children make mistakes. If a toy breaks soon after it’s purchased, or it doesn’t turn out to be as much fun as seen on TV, eventually children will learn to make good choices even when you’re not there to give them advice.
For more information about Total Wealth Planning’s approach to multi-generational wealth planning, please visit us at www.twpteam.com or contact directly Rob Lemmons, CFP®, CPA, AIF®, CEPA at 513-984-6696.