Teaching children about finances and how to manage money when they are younger may help them manage their money better when they are adults. Many people say they have never been good with handling their money, but they were probably never taught about how to manage personal finances.
Many states have statutes requiring personal finance education in schools, but it should also be presented at home by parents. Even though children will not have much income and expenses, it may be helpful to teach children how to set up a mini budget. A mini budget can consist of any income they receive such as allowance and gifts. Subtract from the income any expenses they may have.
Some parents give their children the amount they have budgeted for clothing or other items they may need and let them spend the money the way they want either monthly or per semester. Once their money is gone, they are out of money until the next “pay period”.
Steve and Annette Economides are known as “America’s Cheapest Family” have written a book, “The Money Smart Family System” with ideas they use to teach their children about money and finances. They give their children an allowance, and the older they get the more aspects of their lives they are responsible to pay for. As they say in the book, it is difficult to see them make mistakes such as spending most of their money on something not necessary and they run out of money. But if they learn these lessons when they are younger may lessen the chances of making the same mistakes when they are older and the stakes are larger.
Along with teaching kids how to set up a budget, you can also use everyday experiences to teach kids about finance. It can be as easy as explaining deposits and writing checks when you are at the bank and explaining that you need to have money in your account when you are writing a check or using a debit card at the store.
Teaching children how to use a mini-budget is one way to teach children about handling finances to make them be better equipped when they get out on their own. Even though they will have more expense categories the older they get it is important to teach them to “pay themselves first”. Many people pay their bills first and think they will save what is left over. But in many cases there is nothing or very little left over after paying the other bills. If they have a budget category for savings, they may be more likely to put money into savings. With the power of compound interest, the earlier they can start saving, the less money they will need to save.