Kids learn by example.  It’s shocking how many families never talk about money or budgeting with their kids, and then even more shocking why we don’t understand why it is children grow up to be poor money managers.  We wouldn’t expect a teenager to get behind the wheel for the first time and automatically know how to safely and properly drive a car; so why do we expect our children to grow up to be financially responsible adults without any kind of training?

Here are 4 tips for teaching your kids to be better money managers:

1) Work to set the good example.  If your children see you running out to buy every item on your wish list, whether you have the money or not, they’re going to think that’s just how it’s done.  On the other hand, if they hear you discussing purchases in advance with your partner, or see you planning where the money will come from for the next purchase, they’re going to learn that financial discipline is the first step in being responsible with money.  If you want your children to understand budgeting; live within your own budget.

2) Teach children to give some of their money to charity, save some of their money for the future, and keep some available for spending.  For young children, you might set up three different piggie banks with labels on them, and help your child divide up money whenever they receive it into the different categories.  As your children get older, you can graduate to a “real” bank account and a notebook or check register to help them keep track of how much money is deposited into which category, and where the money goes that is withdrawn.

3) Consider a points system to reward children for being active and responsible members of the family.  While some families feel giving a weekly allowance is justified, other families don’t believe that sets a realistic example.  (Who just gets money each week for no reason at all?)  You can set point values to certain chores or activities that are important to your family and at the end of the week set a payscale based on the number of points the child has earned.  You can even make it possible to lose the points they’ve earned by negative activities, and give a bonus if all possible points have been earned for the week (much like employees are rewarded for exceptional work). 

4) Minimize impulse spending, and teach how to spend money realistically.  It would be nice if we got to use the money we earned to buy anything we wanted.  It would be even nicer if we got to earn all of the money we made, rather than pay some to taxes… so when children receive money for birthdays, holidays, or from your point/allowance system, it’s important to teach them how to spend money realistically.  For younger children using the three categories of banks, set percentages for how much will go into each category.  As children get older, probably somewhere around 13, it’s time to start teaching them a more realistic sense of money and how it is used in the “real world”.  For example, a percentage of their money could contribute to their clothing purchases, a percentage to giving, saving, and spending.   It’s also a good idea to encourage children to keep a list of things they’d like to buy some day, and help them save for specific items to minimize impulse spending.  When children contribute to their clothing expenses, they’ll be happier to shop discount racks, consignment shops and thrift shops because their money will go further and they’ll be able to buy more!