Teaching Money Skills to Kids
You understand the importance of living a frugal life; it is only natural that you start teaching money skills to your children so that they know how to handle their money when they become financially responsible for themselves. Don't make the mistake of assuming that it will come naturally to them! This doesn't happen often!
Begin by teaching money skills well and then let go and let them learn on their own. Try not to give your grown children too much help in this area, or they will miss out on an important rite of passage - financial independence. Teach the value of saving
Start early teaching your kids the value of saving money. As soon as they start getting an allowance or earning money in any way, encourage them to save a portion of what they have to use for something special later on. This helps them to learn to dely gratification, which is an essential skill for those living a frugal lifestyle.
Be open about money
Parents of my generation didn't like to talk to their children about money. My mom used to say, "You are a child; you shouldn't have to worry about things like that." I think it is better to be open with your kids about the money that you have and what your general financial situation is. You don't have to tell them how much money you earn, but if they have a general idea of the family's status it can help them to make knowledgeable spending decisions that effect them. ("Can I afford these $100 shoes, or should I be looking for some less expensive ones?" "Will my parents buy me a car when I get my license, or do I have to get a job and buy my own?")
Have a plan
Decide with your spouse when you expect your children to take on certain financial responsibilities. Then give your children the tools to be able to make the plan a reality. If you start giving him an allowance at 5 or 6, then he will have a better grasp of how to treat his money when he gets his first job.
Let your child know what you expect him or her to pay for and when. If you are expecting her to pay for the gas she uses when she drives the car, let her know ahead of time so she won't be surprised when the time comes. Who will pay for insurance when she has a car? Discuss these things with your child.
Avoid over-indulging your kids
Keep your child's allowance modest enough that he's motivated to save for things he wants and eventually get a job. If you give them too much now, they will have a harder time learning to adapt when they start trying to support themselves on an entry-level paycheck later on.
Don't always bail them out
At some point, your child is sure to come up short of cash. This is necessary for learning to be more careful. Make a policy to never give advances on allowances unless you want them to learn to rely on payday loans and credit cards as adults. Instead, help them review their expenses and where they went wrong.
It caused me great pain to watch my daughter become overdrawn on her first checking account and have to pay over $100. in returned check fees, but I didn't rescue her because I knew if I did, she would never learn to handle her own money by herself. You are not doing your child any favors if you teach her that you will always be there to fix her mistakes. Instead, talk with her about ways to help herself.
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