Modeling Good Financial Behavior for Your Kids

How do kids learn to handle their money? From watching you! Here are a few steps you can take to show them, by example, to be responsible savers and consumers.

Of all the lessons we teach to our children, one of the most important is how to deal with money. We’d all like to see our kids grow up to be prosperous and financially savvy, and it’s never too early to get them started in the right direction. Here are eight things you can do to help your children form good financial habits:

  1. Spend cash. Give the kids cash for their allowances or spending money, and if they need to spend money online, have them ask a parent to enter a debit card number. A stack of bills seems a whole lot more real than a debit card. That will also give you a chance to see what they’re buying on the Internet. If your kid is prone to losing things, it’s also safer to lose cash than a credit or debit card.
  2. Match their savings.  If your child is working, he or she can save for a rainy day just like you do. Ask them to choose a far-off project that they’re saving for, then match every dollar that they put towards that goal.
  3. Negotiate purchases. Many high-dollar items, such as cars and cell phone plans, are open to negotiation. If your kids watch you bargain for a better price, it will help them become educated consumers themselves.
  4. Help them find a job. Many teenagers may not realize how much hard work it takes to earn a living. But making money is not automatic. Getting a job that pays a modest wage – and seeing how much their paycheck will buy them - will teach them that real money is hard to come by.
  5. Shop around. Get them in the habit of comparison shopping and avoiding impulse purchases. When you’re forced to take time to investigate purchases in person, it’s also easier to run across sales or options that you weren’t previously aware of. A child on a limited budget won’t take long to appreciate the joys of bargain hunting.
  6. Get them ready for college. Talk to them early about how you may or may not choose to help them with their tuition. Let them get started as young as possible to begin getting financially prepared for college.
  7. Learn to give back. Talk to them about which charitable institutions you contribute to and why. Offer to help the charities that are important to them, possibly through a matching program.
  8. Start a model portfolio. Start saving on behalf of your children by buying securities with them. They’ll learn about the due diligence that goes into any responsible investment, discover how to balance risk and return, and get a feel for the patience required to let an investment grow to fruition.

Most of all, talk to your kids about money. Let them know that you have to make tough decisions about spending and saving every day. And be sympathetic to their problems – although that doesn’t mean opening your wallet every time they ask for money.