Teach your children how to manage money | Featured Columnists

Teaching children how to manage money is one of the biggest challenges parents face. However, if you cannot teach your children the difference between needs and wants, how to budget and how to save, they will likely join the millions of people who have huge credit card debt, get hit each month by big interest payments, and struggle to make ends meet. Below are some suggestions to help you get started:

• Give an allowance.

An allowance is a good first step in teaching children how to manage money. Start with a small amount as soon as your child is old enough to understand the connection between money and purchases. Break the weekly allowance into bills and coins that will allow a small child to actually place the money in boxes, piggy banks or envelopes labeled, for example, “school,” “clothes,” “entertainment” and “savings.”

• Set limits.

Children need boundaries. Setting, and sticking to, spending limits teach a basic lesson: You cannot have everything all the time, and you cannot necessarily get what you want when you want it. This teaches financial discipline, and will encourage the child to comparison shop, and keep an eye out for sales.

• Go shopping together.

Take your child shopping to learn about pricing, brand names, and how to find the best deal for the money.

• Have your child keep a financial journal.

Simply start by listing the weekly allowance on one side of the page, with expenditures on the opposite side. Review the entries with your child each week. Somewhere along the line, give your child a ledger and a dozen No. 2 pencils to encourage more detailed record keeping.

• Establish a savings plan.

Open a savings account to teach your child about making deposits, withdrawals, banking safety measures, and balancing the monthly statement. Have your child contribute a set amount to savings each week. Retain the monthly bank statements to teach your child about the wonders of compound interest

• Enter the market.

Kids already know about Coca-Cola (NYSE: KO), The Walt Disney Co. (NYSE: DIS), Mattel (NYSE: MAT ), McDonald’s (NYSE: MCD), Nike (NYSE: NKE), Wal-Mart Stores (NYSE: WMT), and Mobil (NYSE: XOM). Consider buying a small number of shares in such companies in your child’s name as part of the college savings plan. This will introduce your child to the market economy, and, who knows, the kid may even dip into the annual report when older.

• Encourage part-time work.

When your children are in high school, encourage them to work part-time. This will teach them the importance of showing up on time, discipline and the agony of taxes, but more importantly, it will create a sense of accomplishment.

• Set a good example.

As always, setting a good example is the most effective way to teach your children about money management. If they see you doing the right things with money, most likely they will follow your example.

There are many financial web sites that can be used to introduce children and teens to the basics of personal finance, such as Kiplinger, WSJ, Investopedia, Wise Bread, and MSN Money just to name a few. Encourage your child to learn the basic terms, and read widely about financial matters. You will know you have done a good job of teaching the basics of money management when your child expresses bafflement and dismay at the way some classmates handle their money.

Elizabeth Hamilton, M.Ed, MA, is a teacher with 30 years of professional experience. You can write to her at successfullearner@yahoo.com with your questions or comments.

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