As we continue to observe Financial Literacy Month, let’s talk about how it can start at home. You would probably agree that learning to manage money is a critical skill for everyone, but everyone has a different opinion on when that needs to begin. To complicate matters, many parents don’t know where to begin. Financial literacy can start early in a child’s life and parents should play a big role in teaching their children how to handle money. Think about it, a young child soon knows a dollar bill has more buying power than a quarter.
Money lessons need to be age appropriate, but learning experiences can be a part of your daily routine and activities. Parents can help kids practice the concepts of planned spending and saving for a future purchase.
Parents often wonder how to teach their children about managing money. The first step is to set a good example for your child to follow. Do you spend money without thinking? Are you careless and buy things on impulse? Do you make weekly trips to buy and add things to the basket that cause you to overspend? Your money habits send loud messages to your children.
A good practice is to get into the habit of talking about money. Kids don’t need to know your income, but they should be aware that the money their parents earn is used to pay bills and support the family. Money is a limited resource and only goes so far. They need to see you pay bills and be a part of consumer buying such as grocery shopping. If you use a debit card, explain how that money is subtracted from your account at the bank when you swipe the card. Likewise, when using a credit card, they need to understand that you will be receiving a bill that has to be paid. You don’t want a child to think that piece of plastic is magic and lets you acquire whatever you want without paying for it. If they see you writing checks or paying bills online, explain that process. They begin to get the concept that money comes in and is then used to pay for food, clothing and shelter for the family.
A great financial activity is to put the kids in charge of recording the money you spend on a trip or outing. Start this weekend if you are going to Down Home Days. Have the children record every purchase your family makes for the day. Once home, the kids can add up all of the purchases then everyone can see the amount of money spent. Better yet, set a dollar amount to spend and let them track the money as you go. Even the cost of a trip to a movie can be planned ahead of time, then talked about after you return home.
These money ventures help children understand that entertainment and trips cost money that add up quickly. It may inspire your family to spend less money on the next outing or better yet, save up money ahead of time for the next venture. As my father used to remind me, “There isn’t a money tree in the back yard.”
An allowance is always a big question for parents. Do you give kids money to use or should it be tied to chores? That is a personal family decision. Children do need to contribute to the upkeep of the family home and their chores should be age appropriate, but whether you pay for chores or give a child a set amount of money each week is a family decision. The important thing is to use an allowance as a tool to teach money management.
An easy method to handling an allowance is to help your children set up a three jar money system; one jar for spending, another for saving and the third for charitable contributions. Use a 70/20/10 split, let children spend 70 percent as they wish; save 20 percent and reserve 10 percent for charity. They can choose to put more of their spending money into the savings jars to reach their goal faster, but no fair sneaking money from the charitable jar! While your child is saving money for the big purchase, help research the different retail establishments that sell the item to get the best price. All of these experiences help develop consumer skills of spending and savings that build financial literacy over a lifetime.
For more information on managing money, contact the Madison County Extension Service to help you get organized and headed down the path of financial stability.
The University of Florida Extension/Madison County is an Equal Employment Opportunity Institution.
-Diann Douglas