A "real" job is a great opportunity for your child to learn about money and responsibility. Before you let him take his first job, you may want to set some ground rules. Consider drawing up a contract in which you delineate what you expect once he starts working. For example, the job should not interfere with school grades, chores around the house, or family events. You can also require that he allocate a percentage of his paycheck to a savings account. These rules can not only teach him about the importance of savings and investments but also about discipline and accountability.
The best way parents can teach their children about money is by first explaining what money is and what it does. There are many ways to introduce this concept to young children. You can try fun and games by making paper money with your child or you may want to use fake money from board games like Monopoly or Life. Remember, the key is to make it fun so that they are engaged. Teach your children about responsibility and hard work by showing them how money is earned. Giving children chores and an allowance is a great way to show them the value in earning what you have. It will give them a sense of fulfillment and achievement. For example, if your daughter wants a new doll, assign her some chores to earn it. You can designate how much each chore is worth. Doing the dishes may be worth $1.50 while taking out the trash can be worth $2. Be sure that she has done her chores thoroughly before she gets "paid." This is also a good way to promote her self-esteem.
A Penny Saved is a Penny Earned
Another good way to show children how to save money is by giving them a piggy bank or jar in which they can watch their money grow. Explain to your child the advantages of saving and why it is necessary. You can set savings goals, such as a dollar per week, to encourage your children to keep saving. Teach your children to save a portion of their allowance for a rainy day or for a personal goal, like a new toy they want. One way to encourage them is by adding to their savings when they reach certain saving milestones. This is also a way to teach them about interest added to savings accounts. The more they understand the concept of savings, the less likely they will want to spend the money they've saved. You can take older children on a trip to the bank to open their first savings account. Many banks offer accounts specifically for kids, be sure to ask about them.
With older kids, you can introduce the concept of borrowing money responsibly. One way to accomplish this is by setting up IOU's and charging interest when you lend them money. Be sure to set the terms of lending by signing a contract and drafting a repayment schedule. This will help them understand the responsibility that comes with borrowing in the future, whether it is for school loans, a car or a mortgage.
Be a Role Model
Remember, you are the best role model for your child. Your children will learn how to handle money by watching and learning from you. Let them see you put money in your "piggy bank" or a real bank. Show them how you choose to save your money instead of splurging it on a new outfit. Or, better yet, let them see how you waited for an item to be marked down before you bought it. Lead by example. Teach your children based on their level of understanding. Keep it simple and fun for younger children. As they grow older, you can introduce more complex ideas of savings and investments. You may not want to try to explain the intricacies of compounding interest and mutual funds to a first grader.
Short and Long Term Effects
By the time your teenager is ready to start his first summer job, he will know how to save money to buy his iPod, car or college textbooks. It is important for kids to be self-sufficient and independent. There is nothing like the pride they will feel after purchasing something with their own money. Teaching your children about money has many benefits. It helps them develop smart savings and spending habits and gives them the know-how to invest for their future. They may just think twice before spending their money on impulse. A clear understanding of personal finance is one of the best gifts you can give your child.