Good financial habits and the ability to manage money wisely are among the most valuable life skills you can impart to your children. As the continuous efforts to regulate the degree to which credit card companies can market their wares on college campuses demonstrate, many children make it into adulthood without the knowledge they need to avoid financial pitfalls. Providing children with a clear understanding of the mechanics of personal finance can help to prevent them from being in a position of having to spend years paying for financial mistakes made in their youth.
Do The Math
You can begin those valuable personal finance lessons just about as soon as your children are old enough to start asking for things at the store. Often parents don’t really discuss how much money they make with children. However, doing exactly that can serve as an excellent means of establishing the relationship between work and earning money, as well as the true costs of things in terms of time.
The easiest way is to just do the math together. If a given toy costs $20 dollars, explain how much you make per hour and figure out how many hours you have to work to get that item. Young children can understand the relationship between time and money, as well as how those things relate to the cost of what we buy. You may want to discuss with a young child whether or not the object of their desire is worth having to be away from Mommy for the period of time it takes to earn the money for it.
In many, perhaps even most, families, parents don’t discuss family finances with their children. If you are among those families, you may want to reconsider your position on the matter, as important opportunities for learning can be lost by not discussing such matters. Once a child masters the basic concepts of how much time an item costs, they are ready to move on to rudimentary budgeting and financial priority setting.
Returning to that $20 toy for a moment, discuss with the child where that toy should rank on the list of family priorities. List the things essential to the family -- food, shelter, basic utilities, such as light and heat -- and talk about the difference between wants and needs. Do some more math together. Figure out about how much is spent on needs and translate those figures into how many hours have to be worked to obtain those things.
Look at the money remaining after essential expenses are paid and discuss how that money may be best used. Would it be wise to set a portion aside to have on hand for in case of emergency? How much money is available for the purchase of things that we want? If there is not enough remaining to spend $20 on a toy, then -- if having it really is important to the child -- what would be the best way to get it?