As a parent, our role is to love our children while teaching them skills that will benefit them throughout their lifetime.  Inclusive of this role is teaching our children personal finance. For many people, learning how to manage their personal finances often occurs through trial and error, serving as a substitute for formal education. Most schools do not teach personal finance leaving this task for the parents to fulfill. Fortunately, assisting your children with developing a strong financial awareness can be effortless. The key is to integrate age-appropriate financial situations daily into their lives. As parents, we should accept the challenge of teaching our children personal finance with gusto, knowing that this guidance is a gift that will benefit them for a lifetime.

A fun place to begin this process of teaching young children budgeting is in the grocery store. Prior to entering the grocery store give your children a couple of dollars to purchase one item in the store that they want. This item is of their choosing. If you want to establish boundaries of what is off-limits it is wise to discuss them prior to entering the store.  Once the boundaries are defined let the children decide what they would like to purchase that falls within their budget.  This is your opportunity to discuss price versus size as well as generic versus brand name and to practice your ability to exude patience. During the course of the shopping trip expect your children to change their minds a few times as you pass through each new aisle. Remember that significant sums of marketing dollars are spent on product placement because it works. Ultimately your children will get to choose what they want within the constraints of their budget. If the item does not fall into their allotted cash at hand, then they can save their money until the following week or find an item that is less expensive.  This technique will empower children by allowing them to make their own decisions while teaching them to stay within the parameters of what they can afford.

• As a gift, give your young children a toy cash register full of play money and a cart full of groceries. Play grocery store with them.  Teach them to be comfortable with cash and smart with their purchases.
• Once your children can count money give them cash to pay for small purchases. Encourage them to pay for the item then count the change on the difference of the purchase and the cash tendered on the transaction. You may hold up the line for an extra minute or so, but that is okay because you are teaching your children a life skill.
• Talk to your children about how much things cost and give them options. For example: with ten dollars you can buy one toy at this price or three at this price.  What would you like to do?
• On a warm summer day help your children plan, prepare and set up a lemonade stand. Talk about price points and the costs associated with the lemonade stand. This is an enjoyable and easy way to discuss the significance of a budget, as well as how quickly income can be diminished if the expenses are too high or sales too low.
• Stock your home with age-appropriate games that teach money management skills, you want your children to be comfortable with numbers and math throughout their entire lives. Games to consider are Monopoly, Game of Life, Payday, Moneywise Kids, Money Bags, Easy Money, Exact Change, and Careers. Make learning fun!
• With your children, open a basic savings account at your bank. Encourage your children to save some cash when they receive it. Review the monthly bank statements together and discuss topics such as: what is a bank, what is a savings account, and what is interest? The purpose is to help them understand the benefits of a savings account.  For example: at this time, you do not need the money that you are depositing into your account. In the meantime, the bank will pay you interest while you keep your money there. In the future, when you need the money we will come back and you can withdraw the funds.
• Let your children fill out checks for school fundraisers followed by logging the amount into the check register. This is your opportunity to discuss a checking account and reiterate budgeting. What is it?  How do you manage a checking account?
• Don’t say to your children, I cannot afford to buy that item because I don’t have any money then turn around and charge it on your credit card, especially if it is an obviously frivolous purchase. Children learn by observation. Tell the truth and set an example, I have spent my budgeted allotment for the week, even though I want this item I am not going to purchase it today.
• Teach and encourage your children to negotiate. This is a life skill that they will need when they are purchasing a home, a car or are seeking a higher salary from their employer.  If your children want a new item that they cannot afford, don’t immediately say “yes” or “no.” First, listen to them, are you possibly willing to accommodate their request?  Maybe your answer is “no” because it is too expensive.  Perhaps the item can be placed on a birthday or Christmas wish list. Or maybe Mom or Dad can purchase the item in exchange for a few extra completed household chores.

If your children are older and have a source of income, an option is to suggest splitting the difference of the cost of the item with them.  This will help you clarify how important the item is to them, if they are willing to have a vested interest in the purchase of the item it most likely falls under the category of “want” and is not an impulse item.  The key is to discuss the “want” and determine how and if it is financially feasible. Give your children the opportunity to find a solution through discussion and compromise, and help them learn the art of negotiating.

• Establish a brokerage account for your children. Assist them with choosing a few stocks of their favorite companies to invest in.  Review the brokerage statement and discuss how the investments can fluctuate monthly.  Define the purpose of this account with your children.  For example, your brokerage account is a long-term savings account that you can access when you are no longer living at home.
• In lieu of giving your children an allowance, give them lunch and entertainment money separately over the course of a week. Determine the total amount of the weekly expenses that you are willing to pay. Once this dollar amount is established, give your children the allotted cash on the same day weekly.  Discuss with your children their options, such as bringing a lunch to school that they prepared at home to save money.  Maybe in lieu of spending an afternoon at the movie theater, they want to spend an entire day at the local go-cart stadium. Use this opportunity to talk about the choices that can be made so that your children can afford to spend a day at the go-cart stadium.  If they run out of money because of a poor financial decision let them live with the consequences until their next payday. Teach your children that living within a budget requires continuous planning and diligence.
• When your children reach age 16 encourage them to seek a job for at least the course of the summer. This should not interfere with their education and/or extracurricular activities.  The purpose of the job is to nurture the money management skills you have instilled in their entire lives.  Let the newly working teenager pay for the gasoline they use in their car and the extra “wants” in their life.  Teach them to fill up their gas tank prior to purchasing a new outfit or video game. Encourage them to save. The goal is for your children to understand the concept of prioritizing their “wants” and “needs” by allocating their cash appropriately to meet their objectives.
• After your children are employed, encourage them to open their own checking account with a debit card. Once they are able to manage their checking account and debit card, have them apply for ONE credit card.  Discuss the benefits of a credit card and the shortfalls, such as cost, interest rates, and length of time it takes to repay the debt if only the minimum payment is made.  Help your children understand that having a credit card can influence behavior and your credit score. Explain that making a purchase with a credit card does not equate to being able to afford the purchase. Help your children manage their credit by teaching them to charge only what they can afford to pay off monthly.

As parents, it is our role to teach our children to grow into money-wise adults. The key to giving them a successful financial future is to establish a strong foundation from a very young age. Children unlike adults have the advantage of making negative financial choices that will not impact their lives for years in the future, and which they can learn from. Take the time now and bestow on your children the gift of a lifetime, financial acumen.  This will be one of the most impactful gifts you will ever give them, and ironically, it really only costs you your time.

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