When it comes to teaching children about money, the earlier the better. It’s not an easy task but if you start early enough there are short and long-term benefits. In the short term, they will develop strong savings habits and learn how to make smart purchasing decisions. In the long-term it will help them to avoid accumulating debt and plan for financial security. It’s also a good idea to teach your children where the money is coming from because most children only see it as coming out of mom and dads pockets. Start by explaining to your children that money is earned by working.
There are different feelings about whether or not an allowance is a helpful way to teach children the importance of money. According to the University of Arkansas, “Children need to have money of their own to learn how to manage it. An allowance is a better teaching method than simply giving children money upon their request, says the Cooperative Extension Service, University of Arkansas. An allowance for children should be a set amount, should be paid regularly, and not tied to regular tasks required of the child. When deciding on the amount of an allowance, discuss what items will be covered. The amount should be enough that the child has money to manage with no strings attached (2006).” More examples of lessons to teach your children about money include: make saving interesting, banking and investing, and compounding.