Since our kids learn how to manage money mostly by watching how we manage ours, we can make a big difference in preparing them to recognize and defeat the debt-influencing forces which have overpowered many of us. Child specialists and financial advisors recommend four key strategies to prepare kids to become masters, not slaves, to money:
Strategy No. 1: Hold family financial meetings and introduce the basics of household budgets: the inflow outflow equation: Your kids should know the sources of the family income, a "ballpark" numerical figure or general description of how much money comes in each month, how much is saved, and how much goes out of the family reserve. If financial difficulties have fallen upon you, don't overwhelm your children with the potential catastrophic consequences; Just briefly spell out how you plan to get out of it and that you can't make undue sacrifices to give them everything they've been used to getting.
Strategy No. 2: Use a "hands-on" approach and consider your children's maturity and developmental levels of understanding when teaching the income outgo budget equation. As younger children learn basic arithmetic, however, you can give them a "feel" for the family budget money drain from check writing and teller machine withdrawals by going over the receipts, charge bills and checking account statements. Likewise, older children and teens aren't totally aware that continual use of the credit card means we pay for today's purchases with tomorrow's income, and that today's family outgo is paying for past credit card purchases. Our 14 million high schoolers spent close to $100 billion last year for food, clothes and entertainment, mostly via credit cards.
Strategy No. 3: Develop a positive attitude toward money management by practicing what you preach. Most parents aren't the greatest money managers, so try to "Walk the Talk." Kids and teens are apt to pick up inconsistencies when we say one thing and do another. When shopping, spend extra time to teach children how to read labels and compare prices. Cut out store "specials" and coupons from newspapers, have them locate these deals at the store, and explain why you buy one brand over another.
Strategy No. 4: Give your children an allowance, and structure it so they must manage it themselves. Ironically, less than a third of all U.S. children get a weekly allowance, even though experts agree that it is the gateway to developing sound budgeting and spending skills, and can be started as early as age 5. With some ground rules established, decide with your children what the weekly allowance is to cover.
Then, establish prearranged times for payments. With younger children, start with bi-weekly allowance payments, then gradually increase the payments to weekly intervals. As they grow older, most teens can budget successfully with monthly allowances. Always make allowance payments on the same day, so they can pace themselves and securely plan their spending and savings. Encourage them to consider how they will spend, save, and share their money.
Give younger children a transparent container to store the allowance in, and give them coins, not bills. In this way, they will concretely feel the weight, hear the jingle, and see their shiny accumulations when they save and their disappearance when they overspend. If your child wants a candy bar, comic book, or a mechanical hobby horse ride at the grocery store, simply state, "Use your allowance money, honey." If the piggy bank is empty, that is the end of the matter.
Don't use the allowance as a means for punishment or as payment for household chores. Remember, your giving your children a regular, predictable income so they may learn to make consistent money management decisions. You can pay kids for special or extra jobs around the house, but routine household chores should be expected, without pay.
Your early efforts in teaching young children that money doesn't grow on trees or magically spring from the deepest recesses of your pockets should make money management easier for them later on.
Hopefully, by teaching our children the relationships between postponing gratification, budgeting, spending and saving, our children will discover something which many adults have not...that money makes a terrible master but a magnificent servant.
Robert Morton, M.Ed., Ed.S. has retired from his positions of School Psychologist and adjunct professor in the School of Leadership and Policy Studies at Bowling Green State University. He is author of the book "Finding Happiness in America."