Money management is a skill that some adults don’t possess. Is it possible to teach children how to manage money before they get to adulthood and the risks become more severe? There may be a way. Giving your child an allowance could be the way. However, it’s not just about giving them money. You also have to teach them the valuable lessons on saving and spending wisely.
By starting these lessons at an early age you will be building the foundations for smart spending and money management which will benefit your children greatly when they become adults and have to deal with juggling income with mortgages, bills and saving.
An allowance has to be agreed upon by both parents and a regular routine should be established. If you decide to give the allowance at the beginning of the week continue to give your child money on a Monday. If you’re giving the allowance for weekend spending then always give on a Friday. The important thing is to be consistent. Being consistent on when the allowance is given will prevent confusion, overpaying and will establish a routine for your child that is similar to receiving a paycheque once they start working.
A good time to start giving an allowance is when your child starts asking for you to buy them things. Instead of always purchasing the item for your child giving them an allowance and letting them buy the item themselves will teach them the value of money. The amount you give should be appropriate for their age and will increase as they grow. When children are very young their spending habits are different. They will most likely be interested in buying toys or small items that catch their eye at the grocery store. At a young age they are not yet going out on their own with friends and aren’t interested in clothes yet. Therefore, they only need a small weekly allowance. Pre-teens and early teens will require more as they will want to do things with their friends. Their allowance should be within reason so that it allows them to do the things they want but maybe not every time. That way they will have to learn to prioritize their spending and perhaps save a few weeks to have enough to do what they want. Once a child starts earning their own wage through work outside the home their allowance should cease.
Although some believe that allowance should be linked to work or chores around the house others disagree. You don’t want to get your kids in the habit of only helping out if they’re going to be paid for it. Household chores should be shared amongst the family whether an allowance is given or not. This will give your kids a good work ethic.
Discuss with your kids what they will be spending their money on. You should stay involved in their saving and spending habits to guide them along the way and to know that they are spending their money appropriately. Keep a watchful eye but let them make spending mistakes so they can learn from them. The best way to learn is through trial and error.
Knowing how to save money is so beneficial for their future. We all know that unexpected things happen in adulthood and having savings is so important. Anything from losing a job to household renovations can cause panic and stress if the savings aren’t there. Teaching saving is also a starting point to get young adults on the right path to saving for their retirement. The earlier you start the less you’ll have to put in from each pay. There are a few ways to teach your kids about saving. For young kids a good way to start is to have them pick a big purchase that would take weeks or even months to save for. By having them choose an item it gives them a goal to work towards. As they put their money aside for this big purchase you can keep a record and track their progress. They will get excited as the get closer to their goal and will be able to see the benefits to putting the money away instead of spending it right away. Another way to teach saving is to open an account with them at the bank and have them put a small amount away from each allowance. Experts recommend 10% Make sure they are involved in the entire process, from opening the account to putting in the deposits and allow your child to keep their own bank records so they can see the balance rise. Getting them involved gives them a base to knowing how banks work and will introduce them to financial processes like earning interest.
In a time of financial uncertainty it pays to have money management skills and the best time to start is early. Giving your kids an allowance will give them the tools to make smart money decisions and put them on the path to successful personal financial management.
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