Even while your children are small — 3 to 6 years old — you can begin teaching them about money. Take your children along with you when you go shopping. Explain to them why you buy the things you do. Teach them to get the most for their money, to buy the best quality affordable.
When dealing with preschoolers — 4 to 5 years old — begin to teach them how to count money. Teach the importance of giving and receiving the proper change. As your children grow older, they will have been exposed to money and the things it can buy. Now is the time to consider an allowance.
It is important to sit down with your children and let them help determine their allowance with you. This will help teach the rudiments of budgeting. One important consideration in providing an allowance is to be consistent. After all, few adults would like to have erratic incomes.
A regular allowance can eliminate children's attempts to manipulate their parents to get money or gifts. Also, children who are given allowances tend to become more aware of the value of money. Discuss the advantages of a savings account. Help your children plan some financial goals: perhaps for a bicycle, a stereo, a vacation or college.
Finally, involve the whole family in the household's budgeting process. This will help children learn about budgeting, as well as give them a clear idea of their family's financial picture.
Consider the example of a person we'll call John. He hit on a graphic way to impress upon his children the value of money and the wisdom of budgeting and saving. His income was being sapped by high electricity bills because his children constantly left unneeded lights burning. His children were fairly young, but his simple method could be adapted for older children and even teenagers.
John gathered his children around the kitchen table one evening. On the table were numerous stacks of pennies. Each stack was labeled to represent different household expenses — home mortgage, food, heating, electricity, clothing, entertainment, etc. He explained that the stacks of pennies represented the money he brought home from his job and that the stacks showed where the money went each month.
"Each of the bills we have has to be paid," he said. "And if one of the bills is larger than we expected, we have to take some money from one of the other areas to help pay for it." His children nodded, keeping their eyes on the pennies. They understood his reasoning.
"One of the things we like to do most is go out and have a good time, isn't it?" he asked. "Yes," his small son answered. "We like to buy ice cream!" "And we like to go to the movies," said his daughter.
"Right," John agreed. "But this month our electricity bill is bigger than we expected, because we leave lights on all over the house when we don't need them." His children could see what was coming. "So," John continued, "we have to take money from somewhere else to pay the electricity bill. The only place where we have extra money is in our entertainment stack."
John moved pennies, one at a time, from the entertainment stack to the electricity stack until there weren't any left in the entertainment stack. "Now," John announced. "Our budget for this month is balanced. Maybe next month we'll have enough money to go out and have fun," he said hopefully. His kids could tell he was on their side and was just as sad as they were.
After the family meeting was over, his children immediately began running all through the house, shutting off lights. John's electricity bill went down, and his kids learned an important lesson.