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By Joshua Goodwin
Teaching
children the value of money and financial responsibility is one of
the most practical and important lessons children can learn. Our
consumption-driven society has never been more fiscally
irresponsible. In 2006, the savings rate was a negative 1
percent! So on average, people not only spent every dollar they
made, but also had to either go into debt or draw on their savings
to spend even more. There hasn’t been a savings rate this low since
the Great Depression. Of course, during the Great Depression, the
unemployment rate was at 25% - today it’s less than 5%. Back then,
people were forced to spend more than they earned just to take care
of their basic necessities. Today people don’t think twice about
spending money they don’t have just because they feel they “deserve”
it. Our children are surrounded by this out-of-control consumer
culture and so the earlier they learn about fiscal responsibility,
the better off they will be.
The best
method for raising financially responsible children is for the
parents to be financially responsible themselves. You cannot teach
your children what they should do if you yourself don’t do it. You
first have to get your own financial house in order. Children don't
do as you say - they do as you do. They study your every move, and
unfortunately, plenty of parents pass on some very damaging
financial practices.
Children who
watch their parents ring up huge credit card bills buying luxury
items and taking vacations they can't afford tend to dig the same
financial holes themselves as adults. A child who sees bills pile up
unpaid is getting a damaging lesson in managing money - one they may
struggle all their lives to overcome.
Another way
you can ruin your child’s financial future is by spoiling them.
Many people seem to have convinced themselves that showering their
kids with everything they want is good parenting. They lose the
ability to say no to anything their child asks for.
Then when that child gets out in the real world on a low
starting salary, they have no sense at all of financial restraint.
They still expect to be able to have everything right now. Of
course, credit card companies are happy to assist them in getting
what they want right away. It doesn’t take long for a child who has
been spoiled their whole life to find themselves buried in
$5,000-$10,000 of credit card debt.
Along those
same lines, you shouldn’t buy your children something every time you
take them with you to the store. It’s not a matter of being able to
afford to buy them something, but rather an opportunity to teach
financial restraint. Buying toys and gifts for your children should
be reserved for special occasions (e.g. Birthday, Christmas, etc.).
If you simply buy everything your children wants, you are not only
taking away the "specialness" of gifts, you are setting up your kid
to be a financial wreck. The children who get everything they want
when they’re young end up struggling with debt the rest of their
lives -- simply because they were never taught moderation and living
within one's means.
Of course,
parents can also teach their children bad financial habits by
spoiling themselves as well. Very few families seem to know how to
live within their means. They seem oblivious to the risks of
spending more than they earn. In fact, they seem more concerned
about the perceived shame that might come if they tried living
within their means. Keeping up with the Joneses has never before
been so pervasive in our culture. It’s impossible for you to teach
your children how to handle peer pressure if you can’t resist it
yourself. Spending money just to impress someone sends the wrong
message to your children.
Of course
learning how to manage money is something children have to learn by
experience. Giving children a lecture about how to handle money is
not enough. Children need to learn and experience it.
One great way
to teach your children about earning and managing money is by giving
them a regular allowance. This gives children first-hand experience
in learning how to manage money and appreciate the value of their
hard-earned dollars.
In addition,
having an allowance will help children set financial goals and learn
how to live on a fixed-income/budget. It will require them to make
choices about what they will spend their money on. They will have
to learn to balance what they have with what they want. They also
learn that everything has a cost associated with it. Just because
it’s advertised on television doesn’t mean that you can afford it.
Of course a
child shouldn’t be paid for every little thing they do around the
house. Each child should have regular household chores that they
are required to do because they are a contributing part of the
family. Then there should also be additional tasks and
responsibilities for which they are paid an allowance. These tasks
provide children with an introduction to the notions of work and
receiving payment for the level and quality of the work they do. An
important part of giving an allowance is that your children learn
that if they don't do the work and just as importantly, if they
don’t do quality work - they don't get paid.
Allowances can
also be useful tools for teaching your children about other values.
For example, teaching them that the first 10% of what they receive
belongs to the Lord. Requiring them to deposit a certain amount
each month in a savings account teaches them about frugality and
long-term planning. Helping them to decide whether to wait to buy
something later rather than right away shows them about the value of
patience and delayed gratification. An essential part of becoming a
responsible person is learning to delay gratification. Yet popular
culture encourages - and profits from - people seeking immediate
gratification. Teaching children to delay gratification, through the
use of allowances, will make them more resistant to the messages of
"Gotta have it now!" with which popular culture bombards them, and
will help them grow up to be financially responsible adults.
How much you
decide to give as an allowance will depend upon your individual
financial situation and the age of the child. It shouldn’t be such
a large amount that they are never required to make any tough
financial decisions and it shouldn’t be so little that it doesn’t
allow them to practice financial responsibility. As the child gets
older, the amount you give should increase.
It’s important
that children learn that money does not “grow on trees”. Just
because you have checks in your checkbook or credit cards in your
wallet does not mean you have money to spend. An essential part of
fiscal responsibility is learning to live within one's budget. Your
children have to learn how to respect money and use it properly.
Money is not just a means of buying popularity or happiness. The
most important lesson you can teach your children about money has
nothing to do with how much you can get, but rather how to use what
you do have.
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