Financial Advice By: Carmen Wong Ulrich
Q: My daughter is still quite young, but I want to make sure that when she’s older and ready to go off on her own that I will be able to send her off with a positive start to her financial future, so that she can be as independent as possible and can avoid some of the mistakes that I made. What do you think are the most important lessons that I could teach my child about managing her money as she’s growing up?
My seven-year old daughter says loudly every time we shop for her, “Mom, what’s my budget?” Onlookers twitter, but as you can imagine, it’s a proud moment. No matter how old your child is, it’s never too late to begin. Here are some solid to-do’s to teach your kids about money that will last a lifetime:
- Limits: As early as five years old, you can start a child with a budget. For example, let’s say your daughter wants a toy and you say, “Your budget is $5.00.” She then knows that she has to either find something close to that amount or two or more things that add up to that amount. Knowing that money has limits—that you can’t just put a card into a machine and unlimited cash spits out—means that your daughter will be much more likely to respect limits when she grows up, such as avoiding the trap of overdrafts on her accounts or using too much credit. But the key here is you have to hold firm.
- Earning and handling money: This one is simple. As soon as your child is old enough to make his or her bed, get dressed on her own, and do other small household chores, start them with an allowance. Adjust to what fits your budget and child’s age. Allowance isn’t just a way to make money to buy candy. It’s a big and tangible way to teach that when you put in effort, you get a result—this result is your responsibility. Start three piggy banks or boxes where you can put some of the money in one box, then a charity or church box to teach that you should give to those in need and, then, save money for something bigger down the road. Which brings us to…
- Delayed gratification, a.k.a. planning: This one is a doozy and one that even many grown-ups fail at. Part of your child’s allowance should go toward a goal. Maybe it’s the ability to go to the arcade with friends or rent a movie on-demand. Designate some spending as their responsibility. For example, my daughter knows that any movie, show or app she wants comes out of her “bank.” Recently, she spent all of her allowance on a movie rental then realized she had no money to play games at the arcade later that week. She was very upset, but I held my ground and explained to her the need to plan for your money and use good judgment. It wasn’t easy, but lesson learned.
- No fear: One last important lesson is to make sure that your kids are not afraid or ignorant of what it’s like to go to a bank or other financial institution and make a transaction. Take your kids to the bank with you when you can, even if it’s just to sit in the lobby while you go over a few questions. It’s important to see the role of banking in your lives. And if you’re mostly an online-banker like I am, then show your daughter your cell phone bills, explaining charges, so she understands what bills are and just how much it costs to have cell service or other comforts such as cable. Our kids should not fear bills or banks. No fear means they can approach their money positively and with the confidence to manage what life has in store.
Carmen Wong Ulrich is a personal finance expert and author of “The Real Cost of Living.”