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How To Teach Your Children About Money

I’ve read numerous articles saying that the best way to start teaching your child about money is to help them open a savings account…show them the value of money by making them work for an allowance (doing chores around the house), and by showing them the value of saving some of their allowance every time they get “paid”.

That can and does work…and I think it is a good place to start. But, typically works well when the parents are motivated and responsible with their own money. What if the parents are not very good with money? What if they cannot afford to pay their child an allowance? It may be time to introduce your child or children to the real world.

Have you ever seen the T.V. show The Big Idea with  Donny Deutsch on CNBC? I used to watch it once in a while. I have to say that it is really quite interesting to see what kinds of ideas these people come up with. One show in particular that I’d like to address was about children starting their own business.

I happen to think that this is an excellent way to teach children about money and the value of it. It also reinforces and demonstrates that wealth is created and not just plucked out of thin air from “somewhere.” While there are some limitations to what a child (depending on his or her age) will be able to accomplish without the help of an adult, it is probably the greatest way to transition away from an allowance that you pay them (if you pay them an allowance).

There’s nothing wrong with “working for mom and dad” and earning an allowance, but it does not promote autonomy and individualism in the same way that owning a business does.

A business, whether it’s a lemonade stand or walking the neighbor’s dog (or all of the dogs in the neighborhood), will do a very good job of keeping the child “in check” with reality. If the business fails, it is the result of the child’s efforts or lack thereof. For the most part, the degree to which the business is successful is the degree to which the child understands how to make money.

Once they’ve created wealth, then I think it is an excellent time to teach them what to do with it. This is where it helps to have parents that are financially literate. If you’re a parent with young children living at home, consider that their first education will probably come from you. Do you have a good understanding of how to save and invest money? Do you know how to create a sound, efficient budget? These are the skills that your child will eventually need to learn, and they won’t learn them in school.

This entry was posted on December 22nd, 2011 by David C Lewis, RFC. Edits may have been made to keep this entry current. · No Comments · Budgeting & Money Management, Wealth Creation

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