Personal Finance

How do I teach my child about money?

Is personal finance a subject parents should “teach” their children?

With Sara’s imminent arrival, her upbringing is naturally a very hot topic these days. I’m getting way ahead of myself, but I’m already thinking about how we are going to share our values and money habits with her. On the finance side, I know that our biggest gift to her:

• is not a large inheritance but an environment that allows her to grow into a competent individual capable of generating her own income.

• is not just to lead by example but show her the mistakes too and the consequences of those actions.

• is not a bunch of parenting lectures but to show her the beauty of financial freedom.

This takes communication, care, the occasional embarrassment and most importantly, time. This is going to be a journey, but the effort required will most definitely be worth the troubles. I admit that I don’t have a completely comprehensive plan yet, but here are three approaches I will definitely pursue.

The four jars

The idea is to divide the kid’s allowance into four jars: Spending, Retirement, College, and Taxes. Once you have an empty jar, you weren’t allowed to spend any more until next month. It’s not perfect, and many details (such as what percentage to use) is left out, but it transfers nicely to a budget when they grow up and a system (or at least a variation of it) that’s worth trying.

I learned about it via Michelle’s post on the Four Jars Approach, which has more details

on her own thoughts and experience with it.

The parents match

Without a doubt, the employer 401k contribution match is a huge incentive for everyone to save for retirement. This needs to wait until Sara is a bit older (when she can grasp percentages and fractions), but I’d like to implement something similar with my own children. The match will probably be generous too, given that the money is really coming from the same place as our inheritance for the children when the time comes.

Involving my children in the little money matters

A common concern amongst parents is that their children never know how expensive utilities add up until they have to pay their own bills. To rid ourselves of this problem, why not include Sara into our bill paying process? We can make it fun by giving her rewards whenever utility bills go down from a three month average, for example. I admit that I haven’t thought this reward out fully, but at least she can look forward to getting that bill instead of the whole discussion being ultra boring.

What worked for you?

Let’s start with these three, but I’m sure there are a ton of others with amazingly simple and effective ways to teach their children about money. How have you taught your children about money matters, or have you? Are there any specific examples you can share that has worked, or failed? I’d love to hear from you, and I’m sure that many parents will thank your insight as well. Culled from MoneyNing.