As parents, one of the most important lessons for us to teach our children is how to spend and save wisely. By sharing financial lessons with our kids starting at an early age, we can help them understand the importance of being financially responsible and self-sufficient for life.
This is important today when young people experience pressures like never before to buy, consume and run up debt. Kids are bombarded with advertisements for the latest gadgets and pressured to “keep up with the Joneses” by having the latest fashions and toys.
Technology has elevated buying-on-a-whim to an art form. Sitting at their computers or thumbing the keys on their smart phones, kids and teens can download or order a world of music, entertainment, games, books and services that didn’t exist a decade ago.
The need to drive – or be driven – to a retail store sometimes created a sufficient buffer to quell kids’ impulse to spend, or at least presented the prospect of giving mom and dad an opportunity to intervene. But no longer. Direct deposit, debit cards and online banking have each accelerated the pace of money – and accordingly, the speed at which our children must make the right or wrong financial choices.
Kids need to be given a clear, alternative vision to the “spend, spend, spend” mentality that surrounds them. Fortunately there are many things parents can do to teach their kids sound money management. Here are some tips:
- Teach children the difference between needs and wants – A great way to do this is to share your full family financial picture, including what you earn, what you spend, what you borrow, and how you invest and save. Hold regular “family night” discussions with the whole family during which you go over the family budget and review where the money is going. You can even have kids participate by writing checks, reconciling accounts and helping to set and monitor your family budget.
- Teach by example – If you tell your kids one thing, but do another, they will catch on very quickly. Explain how there are things you’d like to buy that you decided to forego and why. And don’t be afraid to openly discuss the mistakes you’ve made and what you’ve learned from them.
- Allowances are a great idea, as long as they are tied into chores – The earlier children learn basic financial principles, such as the exchange of goods and services for money, the better. Nothing builds a child’s self-esteem faster than self-reliance. Children as young as age 4 can benefit.
- Use the “40/30/20/10 Savings Rule” – 40% of kids’ earnings can be used for spending, 30% should be set aside for short-term savings, 20% for long-term savings and 10% for donating. If children sort their money into these categories every week, they will develop responsible lifelong money-management skills at an early age. The amount the child receives for chores should be based on their age as well as what you expect them to use the money for.
Remember also to paint a vibrant picture of your child’s fiscal future. Help kids formulate their own vision of what a life of financial self-reliance and freedom will mean for them. Nothing builds a young person’s self-esteem faster than learning the lessons that can help them become financially independent for life. 
As a consultant to financial advisors, Pamela Yellen investigated more than 450 savings and retirement planning strategies seeking an alternative to the risk and volatility of stocks and other investments. Her research led her to a time-tested, predictable method of growing and protecting savings now used by more than 400,000 Americans. Pamela’s book, BANK ON YOURSELF: The Life-Changing Secret to Growing and Protecting Your Financial Future, is a New York Times Bestseller. She has been featured on ABC, NBC, CBS, CNN, FOX, NPR and in The Huffington Post, Fortune Small Business and hundreds of other publications. Learn more at www.BankOnYourself.com and www.BankOnYourselfNation.com, her new financial education site.