Parents must teach money management to the children continuously. Introducing financial literacy to them is critical. How they manage their money will affect their lives in the future.

As a parent, you can help your kids learn about money management skills. You can discuss money with them, make a plan together, and provide them money learning experiences.

The fundamental money management that must be taught to the kids is how to earn, save, and spending money appropriately. How do we teach financially wise to our kids? The answer is set their path to financial freedom, kids who can budget their spending and saving. Afterward, they will continuously learn budgeting, investing, debt, credit, and financial responsibilities. By comprehending these subject, your children will be able to make financial decisions.

Before continuing, let me inform you some questions that must be answered to know do you teach the children money habits for life or not.

Answer below questions with Yes or No.

1. Does each of my children have some money to manage without my interference?
2. Have I helped my children set up spending and savings plan?
3. Does each of my children do some regular household chores?
4. Do I avoid using money as a reward or punishment?
5. Do I set a good example by being truthful about money matters?
6. Do I give my children more financial responsibilities as they get older and gain financial responsibility?
7. Am I a good money manager, giving my children a good example to follow?
8. Do I allow my children to make their decisions about money if given alternatives?
9. Do I praise my children if they have made wise decisions with their money?
10. Do I help my children finds ways to earn extra money and help them to understand the consequences?
11. Do I help my children find ways to earn extra money that is age appropriate and suits their abilities and skill?
12. Do I sometimes verbalize my desire to acquire more goods and services than my income can handle, so that my children know that I say "no" to myself, too?

If most of the answers are YES, it indicates that you are helping your child learn more money management skills.
If most of your answers are NO, it could mean you may need to help your children more.

Source:
E-book: Teaching Children Money Management
Melanie D. Jewkes
Utah State University Extension Assistant Professor
July 2009
Link: http://extension.usu.edu/files/publications/publication/FL_Finance&Economics_2009-03pr.pdf

Steps to help parents teach the kids to know about money and manage it wisely

1. Talking to your kids about money

You can talk to kids about money. The first thing to discuss is money values or your values.

What is a value? Value is a thing that is vital to you. Value is beliefs that you have. Usually, values are influenced by things (books you read, a movie you watch, etc.) and persons (parents, close friends, etc.).

The example of values that you may have are education, paying bills on time, contributing to a community, helping others, having a luxury car, etc.

After understanding the value, talk with the kids about this. Encourage them to know their values. What the values that they have will help them to set short-term and long-term goals and spend money wisely.

To help you recognize some of your money values, read the pairs of words below, then mark one item in the pairs that would be your first choice in answering the question "if you had extra $100, on which of the two items would you spend your money?"

Dream home
Saving

Education
Travel

Saving
Hobbies

Social activities
Dream car

Education
Dream home

Personal appearance
Dream car

Saving
Hobbies

Hobbies
Dream car

Dream home
Travel

Travel
Charitable giving

Hobbies
Charitable giving

Travel
Personal appearance

Charitable giving
Social activities

Dream home
Saving

Hobbies
Dream home

Charitable giving
Social activities

Personal appearance
Travel

Saving
Social activities

Education
Dream car

Personal appearance
Education

Once you finished, total the number of times you mark each item in the pair activitiy:

For example:

Dream car = x
Charitable giving = z
Travel = z
Etc.

After scoring the values, you can rank your values. Write down the values that having the highest number of "votes". This is a reflection of your values. By understanding your value, you can make your goal and financial attitude based on your values.

Source:
E-book: Financial values, attitudes, and goals.
Debra Pankow
Family Economic Specialist
Link: https://www.ag.ndsu.edu/pubs/yf/fammgmt/fs591.pdf

The most important thing to remember in this point, Children learn about money by what they see, they hear, and their experiences. Talking with kids about money is very important. As a parent, you are their model. Children's financial attitudes and values regarding money are influenced by how parents earn, saving, spend, invest, donate, and manage the money.

2. How to give your kids money?

Should you give your child an allowance?

There are two groups here. Parents who give allowance to their child and parents who don't want to give an allowance (but still giving the money without an allowance system).

Most of the parents are often motivated to giving an allowance to avoid a dispute with their children. The correct motivation why the parents give allowances is to teach their children to prioritize between need and want, how to manage the money, and how to make decisions.

How much money should you give?

In this matter, you should consider the ages of your children and what the allowance will cover. The allowance should be enough to cover basic expenses with some extras. You can give a little extra to teach them to make a choice (for example: spend all the budget or saving for buying a dream book). Let them experiences those, so that they can learn from experiences and learning by doing.

The amount of money depends on family's values, goals, and a level of family's wealth.

How often should you give an allowance?

It is better to give an allowance at a regular basis, such as weekly or monthly. Why should you give them on a regular basis? Regular allowances are used as a teaching tool. Children will obtain hands-on experiences in learning how to manage the money and how to make a decision.

They will get an opportunity to spending money, learn how not to spend all the money, practice saving or investing for short-term/long-term goals, and practice sharing it with others by giving a charity donation, etc. They will learn financial skill or money management skill as a result of their successes and failures in managing the allowance.

The most important thing at this point is, the allowance system will work if you develop some rules and guidelines. In building rules and guidelines phase, you must involve the children. Talk and discuss with them about values, goals, and financial attitudes. Once you have an agreement with the kids, all of you must stick to it.

For example:

- Be consistent
- Don't come to rescue every time they run out of money, they have to have an experience facing failures which are caused by their spending mistakes.
- Motivate them to harmonize financial attitudes (ex: spending attitude, saving attitude, etc) with their values and goals.
- Decide which purchases the allowance should cover. Mistakes often occur when parent don't talk this thing.

3. Teach the kids how to spend wisely

Utilizing money wisely is a fundamental life skill (financial skill) that you should teach to children start from an early age.

Encourage your kids to know how money is used to pay for goods/services, give a donation/charity, invest for a retirement plan, and for buying the things they need (not the things they want).

In this point, communication is a key. That's why I put communication (talking about money with the kids) at the first point.

To give an allowance and let the children having the freedom to choose how to spend the money can teach several lessons. But, please remember that you must teach them about the differences between needs and wants before free them to manage the money. One of the lessons is learning from the mistakes. For example not all purchases will be as satisfying as expected. This is one of the best life lesson to learn.

Another thing that must be taught is money is limited but wants seem to be endless. Because of limited, your kids must make choice about how to allocate the money to gain satisfaction as possible. By teaching this, children are used to live within money limitation, and they can learn to adjust the money when it scarce, finally they are able to set the priorities in their life.

The simple steps you have to teach to your kids, "Everyone have wants and needs. First of all, you have to buy your needs. Then, you can save money for your wants."

The conclusion needs vs. wants

a. Needs are common things that you require or need to live, such as water, food, house, etc.
b. Your needs may be different from others or different at a different time in your life.
c. Wants are another thing that you use and enjoy. These are extra things that make your lives more enjoyable and comfortable. For example dream car, a new bicycle, travel, eating out, etc.

4. Teach the kids how to save wisely

If you have taught the kids about values and goals comprehensively, it is easier to encourage kids to save the money.

Financial attitude is a fundamental thing to be taught. Once they have known this crucial thing, they will save the money intelligently. For example: as soon as they earn the money, they must be thinking about they want in the future (goals), both short-term goals and long-term goals. As a consequence, they save for the goals, then they spend to buy a basic need.

Budgeting is the next fundamental thing to be explained. For example, you should teach how many percents for short-term saving, long-term saving, charity, and how many percents for instant gratification.

5. Dealing with money problem

Inform your kids that you must perform preventive action. The point is lots of financial problems can be prevented if we know that it's impossible to have everything we want. Financial problem emerge when people can not set the priority based on his value and goal.

This point has a close relative to point number two. By giving your children an allowance, you can let them make mistake and learn from the consequences.

Closing remarks

Finally, you have read 5 ways teach money management to your kids. It is about teaching kids money, earning, spending, saving, sharing, and practice dealing with money problem as a consequence making mistakes in handling an allowance.

I hope you can understand the idea and implement them soon in your family.