Too many people seek the help of an accountant because they have no clue about financial planning. That is because they did not learn about it as a child. Parents can make a huge difference in how children view spending, saving, and even giving, by taking a few simple steps. Providing children with an allowance gives children the opportunity to learn to budget and to track their spending. It’s never too early to start learning how to manage your money.
In order for children to understand finances and learn to start financial planning, they must have access to money. An allowance serves this purpose. It should be just enough to meet the needs of the child, but not every want. This will force a child to make decisions and to see the consequences of their spending decisions. It also allows the introduction of a budget and planning for future purchases.
The art of spending is a huge part of financial planning. Of course, children love to spend their money, but doing so wisely is a skill that must be taught. Children must learn to budget for bigger expenses like special toys or activities they wish to do. Then, a child must also learn to be a smart shopper by learning skills like comparison shopping and understanding unit prices. One good way to do this is to involve the children in purchasing decisions of the family such as meal planning.
An accountant will advise you that a savings plan is a vital part of financial planning. The same is true for children. The first step is to discuss savings goals, then have the children set aside a percentage of their allowance to meet that goal. This should be done before anything is purchased. For children older than 7 or 8, set up a bank account and make regular trips for deposits. For younger children, invest in a compartmentalized piggy bank. One final note – do not deny the child access to the money; they will become reluctant to make deposits.
Just like with savings, children also need to make giving a part of their financial planning. Again, a percentage should be determined and set aside for charities of choice. For some, this might mean a local charity or it could simply mean tithing to the church. It is also a good idea to have children participate in fundraisers so that they truly begin to appreciate the value of charity. In addition, make giving presents a part of this plan. Children should budget to buy gifts for friends and family.
So, your children have been taught how to spend and save, but do they know if they are doing a good job? An accountant will tell you that a budget only works if the spender knows where his or her money is going. Children are the same. For young children, have them put their receipts into an envelope for each month. A brightly colored chart that tracks spending can be a great teaching tool for them to see where the money is going. For older children, teach them how to record their spending on a spreadsheet.
As a parent, it is never too early to start teaching children about financial planning. Do not just give children an allowance and expect them to spend wisely, because they will not. Instead, give them an allowance and discuss with them the things they need to purchase versus what they want to purchase. Also, include in the financial planning discussions on savings and giving. Then teach the children how to track their own budget. As an adult, they will thank you.