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5 Effective Ways to Teach Your Child Financial Management Skills Early

Many parents believe that saving money for their children is essential to ensure they have a prosperous future. However, this may not be the most effective way to teach children financial intelligence and help them become wealthy.

Administrator

8 December, 2023

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According to The T.Rowe Price 2016 survey, talking about financial matters with your children at least once a week is the first step towards helping them develop money awareness.

1. Pay your child an allowance

One of the best ways to establish a financial foundation for your child is to give them the opportunity to manage money at a young age. Paying your child an allowance teaches them the value of work.

“New toys, money to go out with friends, even a new bike – children have to work, save, and figure out their own spending. This helps them understand the value of money and learn to spend it wisely when they are out of the parents’ arms,” says Bill Engel, a financial planner for Fort Pitt Capital Group.

Also, don’t worry too much about the child spending money thoughtlessly in the beginning. Even spending money on items without value will teach them a lesson about their own decisions.

2. Encourage your child to save

51% of children surveyed by The T.Rowe Price said they would spend money as soon as they received any from their parents. However, to teach children how to budget their spending, parents should suggest and encourage their children to save money for bigger goals, such as buying valuable items instead of small ones.

One way to encourage children to save is to give them interest if they save. One parent said they gave their child the choice between receiving money immediately to buy the things they like or saving for a certain period of time and receiving additional interest from this savings.

Reuters

3. Open a stock investment account for your child

Around 14% of parents surveyed even opened a stock investment account for their children and taught them about stocks as well as encouraged them to invest.

“The earlier children are exposed to the financial system, the less fearful they become when they face it later,” says Engel.

4. Encourage your child to find a suitable job

A part-time job can help children imagine earning money and managing their income in the future. A job helps them understand responsibility, time management, discipline, and the value of work. Engel’s daughter got a part-time job at the age of 16 and as soon as she realized that her wages were not much after deducting taxes, she understood that she had to work an hour to afford an expensive cup of coffee.

Furthermore, these part-time jobs can help children discover their interests, strengths, and weaknesses, and have a better direction for their future career path.

A U.S. financial director believes that parents nowadays put too much financial knowledge burden on their children, which does more harm than help.

5. Help your child open a bank account

Only 24% of parents in the survey said they had opened a bank account for their children. However, this is very helpful in giving children the opportunity to practice managing and using a bank account under the guidance and observation of their parents.

Engel said he did not have a bank account until he went to college. And the result was that he was very confused when he had to write a check, transfer money, or even use an ATM to check the account balance. On the other hand, his daughter started using a bank account at the age of 16 and became proficient in mobile applications to manage her finances.