As a child, money is the last thing you worry about.
You don’t need to worry about paying for necessities and saving up for a future is basically the furthest thing from your mind. As kids get older and start to become more aware of how money works, and that they need to have a certain amount saved in order to pay for things you want, suddenly it’s a topic they become more interested in.
As some of you may know, I am a fan of Dave Ramsey and just finished one of his books that he wrote with Rachel Cruze called, 'Smart Money, Smart Kids.' It teaches parents key principles to follow when teaching their children about money at any age. There were so many gems in this book that I'd like to share with all you parents out there, but I will stick with my favorite few.
1. Offer commission, not allowance
Dave Ramsey: "My wife, Sharon, and I paid the kids commission instead of allowance because I hate the word allowance. When you make allowance for someone it is because they are not able. We wanted to instill drive and dignity in our kids' characters and make sure they knew they were able. Kids do not develop those qualities when you hand them everything. Life will not make allowance for you, but it will pay you what you earn."
Rachel Cruze: "It is crucial kids understand that money comes from work. It doesn't come from Mom and Dad's pocket. So, they need to be paid a commission: When they work, they get paid. If they don't work, they don't get paid. Chores need to be very age appropriate. When they are 6, they may help match socks in the laundry. When they are 12, they may be expected to empty the dishwasher. The older they become the more responsibility they can handle, the more chores they can take on, which in turn means making more money."
2. Teaching your child how to spend
Dave Ramsey: "When we talk about kids earning commission for chores we always have at least one parent who argues that children should do chores because they are part of the family. I agree, but if you don't involve money in a few chores you lose the teachable moments in the work, spend, save and give principles. When a kid buys something with money he or she has saved, it is not merely a financial transaction; you are watching poise, confidence and maturity develop right before your eyes."
Rachel Cruze: "For younger kids it is important to show them instantly the reward of hard work. When they do a chore, pay them immediately so they can make the connection between work and money. Have them put their money in a clear plastic jar so they can see it grow. For older children (ages 6-14), give them three separate envelopes for when they get paid. The envelopes should be labeled Give, Save and Spend. Have a payday once a week where you pay their commission and help them divide among the envelopes so they build all three of these money muscles."
3. Teaching your child how to save
Dave Ramsey: "When a kid saves money, it is not a mathematical event; it is a maturity event that gives dignity. In our family, saving started to get serious when we announced to our children that we would not be buying cars for our teenagers, nor would we allow them to buy a car on credit. Since we have been blessed financially, we instituted 401DAVE for their cars, matching their savings dollar for dollar. Not every parent is able to match, and that's OK. The important thing is to help your kids set a huge goal and learn to delay pleasure while they save to reach that goal."
Rachel Cruze: "Children need to learn to save up for things they want so they experience the principle of delayed gratification. There are a lot of great life lessons to learn through the process of saving. Every teenager needs an emergency fund of $500. This is really their cushion between them and life. So if a tire goes flat, a cellphone breaks or any "teen-sized" emergency comes up, they have money in the bank to use and don't come running to their parents. This gives them responsibility and a sense of independence as well as prepares them for when they leave home to have money set aside when emergencies happen."
Talking about the topic of money to your kids can look like a daunting task, but it is actually fun! Try to find every teachable moment you can find in any situation. Your kids will thank you when they gain financial freedom as an adult.
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