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Best Ways to Teach Kids Financial Responsibility

Teaching your children the value of money is an underrated aspect of parenting. While the initial focus is all on manners and kindness, financial habits are an equally crucial component of raising a responsible adult.

Best Ways to Teach Kids Financial Responsibility

Particularly in today's time when there are a plethora of gadgets, technologies and other big-ticket items that can catch a child's fancy, inculcating strong financial practices at a young age can go a long way to ensuring that they are responsible with their own money when the time comes as well. Below, we have listed a few of the practices that can be followed by parents worldwide as a starting point on the journey to financial responsibility.

1)Lead from the front

Right off the bat, it is important to recognize that children by nature mirror their parents' actions. If you choose to live wastefully, that's what they will see and try to copy. However, if you are actively demonstrating positive financial behaviour, then over time, the children see that and look to emulate it as well.

2) Involve them in the household's financial decisions

Regardless of how you choose to track your finances, involve your children in them regardless of age. For a young child to learn something as basic as what a budget is, it sets the tone effectively for a productive future. While doing this, make sure that you are also simplifying the language you use to avoid alienating them and losing their interest. A budget can be explained as "a way for Mom and Dad to count how much money we make and how much money we spend, so we don't spend more than what we have".

3)Allowance

This is a tried and tested method, but still worth mentioning as there are several ways to provide an allowance, and not all of them are equal. We would recommend providing a basic allowance that allows them to learn how to save up, but isn't large enough for them to simply wait a month to buy the new PS4. This teaches them the value of money as well as of hard work as they realize the amount of chores/tasks required to earn a certain amount of income each month.

4)Take them shopping

Experience is the best teacher. The next time that you are out and about at a mall or shopping for groceries, take your kids with you instead of leaving them at home or in the car while you go about your business. They will learn how you compare prices and search for the cheapest deals and at the same time, it will be an engaging experience for them as well to know what is required to make the household function on a continuous basis.

5)Don't indulge impulse buying

Most retailers will always have a section near the front of the store that sells small items such as chewing gum, chocolates and candies. These are deliberately placed there to tempt children as they are waiting for checkout. While you can't stop the retailers from doing this, you can control the effect it has on your children. Refusing to indulge them in impulse buying helps them realize the distinction between a want and a need.

6)Encourage their entrepreneurial ideas

Developing an entrepreneurial streak at a young age is beneficial in many ways. It teaches children to think critically and encourages them to observe their environment more keenly. The next time your children come to you with an outlandish business idea, don't shut them down or laugh it off. Talk to them about how they can refine it and what can be done to make it feasible.

7)Introduce philanthropy

Just as we teach kids how to share, we also need to show them the importance of giving. Showing them philanthropic efforts that you do can demonstrate that financial responsibility is not just about budgets and forecasts. It is also about teaching them the value of financial stability and imbibing a willingness to provide support to other people who may not be as fortunate as them.

8)Paying your bills on time

Credit card rates of 18% to 23% are never a pretty sight. Yet, each year, credit card debt of households continues to rise across North America. By showing your children these rates and illustrating how they can be crippling to finances if not managed properly, children learn how to use debt at a young age and avoid living outside of their means.

9) Just say no

Sometimes, the most powerful way to teach is to not teach at all. As paradoxical as it sounds, learning when to say no is a highly effective way to teach children about financial responsibility. That doesn't mean that you say no to all of their asks. Pick and choose what is reasonable and what is not. And when you see a pattern of unreasonable requests, learn to put your foot down instead of acquiescing.

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Example: $1,500 borrowed for one year at 3.4% per month. Monthly payments are $199.05. Total payback with interest and fee of $194.00 is $2,388.54.

NOTE: You can pay off your loan at any time with no penalty. You will only pay interest up to the date you pay it off.

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