This question is what most parents should be asking themselves about personal finance, because the truth is, their kids most likely are not going to learn it in school.
Many parents feel that if they teach their kids to save and they make sure their kids don’t spend too much money, they’ll be okay. Don’t assume that if your kids get a good education, and then a good job and a good salary, they’ll understand how to manage their money. Financial literacy is more than the accumulation of money.
So what are some ways parents can teach kids financial literacy?
HOW TO BUDGET
Keep your kids on an allowance! Every time I talk to a group of kids I ask how many of them are on an allowance, and very few raise their hands. We’ve moved away from this very informing practice! Kids need to be kept on an allowance, because it teaches them how to budget their money.
If your child is over the age of 12 (and in many cases, even younger), you’re probably giving them money for various activities daily. Figure out how much they spend on a weekly basis, and come up with a flat amount to give them as a weekly or monthly allowance. Let them be responsible for paying for their lunches and snacks, having money for mall trips, and paying for school related activities, like dances.
If they spend all their allowance on some new video game, and don’t have enough left to buy lunch at school, let them learn that they’ll have to pack a lunch or they won’t eat! Giving an allowance forces kids to think about their future (even a weekly future). They’ll have to plan for upcoming expenses and resist temptation to buy things they don’t need. They’ll also learn the benefit of not spending and saving for a big purchase in the future.
Do your kids spend a lot on the internet, downloading music, games, and screensavers? Do they run up phone bills text messaging friends? That should be part of their allowance as well. Don’t give them your credit card number. Pre-paid debit cards are a great tool to help your kids learn to control their spending in today’s cashless society.
Giving your child a certain amount every week on a pre-paid debit card is a great way to implement an allowance. You can buy pre-paid debit cards and phone cards in local drug stores like CVS. There are several pre-paid debit card programs designed just for teens. Many have great tools for parents to allow them to monitor their child’s spending and continually load money on the card. However, many charge fees for these services so read the fine print carefully.