Teaching Financial Independence To Children

March 16th, 2008 | Stacey | Debt Management, Financial Freedom, Financial Independence

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Teaching financial independence to children is a key element to success. Many of us grow up with a myriad of misconceptions about earning money and becoming financially free. Giving children essential skills at an early age will prepare them for a more secure future.

Education – financial independence depends on it. So how do you teach your children about money? Give them an allowance and let them learn firsthand. By kindergarten or first grade, most children are ready to receive weekly allowances. If your little ones get upset, they can get a few shiny pennies until they are old enough to differentiate money and the various amounts. However, don’t hold the older children back for the little ones.

Allowance amount vary based on the financial needs and age of your child. Guidelines include $1 per grade level, starting at first grade. You can also pay an allowance equal to half the child’s age. Pay the money on a regular schedule. Set up expectations for using the cash, such as saving 10 percent and donating 10 percent. You can also have your children put 10 percent in college savings then allow them to spend the rest as they see fit.

An allowance should be separate from chores, which should be performed regardless of pay. Parents can offer inspiration by paying extra for children completing chores outside their regular scope of daily responsibilities. This also teaches your children how to be enterprising and earn extra money when they need it. Avoid lending money ahead to your children – after all, we want to discourage credit. If your child needs to borrow money for an important reason, such as a school trip, make sure the money is promptly repaid on a schedule or withhold a portion of their allowance until the debt is covered.

You can encourage your children to save more by offering to meet their savings, sort of like their own little investment or pension plan.

Finally, if your child spends money on a toy that breaks the first time they use it or wastes their allowance on candy the first day then can’t go out on the weekend, these are learning experiences. Instead of “I told you so” let your child learn from their mistakes to become a wiser consumer.

Teaching financial independence to children starts with a weekly allowance and how its handled.