Wednesday, November 25, 2009

Money Management Tips for Parents and Kids

Thanks in large part to the recession, more and more kids are asking their parents about money. Because the economy has made an impact in nearly every aspect of daily life, many kids are curious as to what's going on with money.

That curiosity has created a great avenue for parents to teach kids valuable lessons about money. The following tips can help parents instill a sense of financial responsibility in their children while also helping them better understand the economy.

* Give kids an allowance. Many parents are on the fence about giving kids an allowance. However, an allowance can be a good first step toward instilling responsible money management in children. Pay allowances on a fixed schedule, such as every Friday afternoon, and make sure kids have a list of responsibilities they must fulfill each week before getting their allowance. In general, it's hard for kids to learn about money if they don't have any.

* Give kids some initial leeway. Kids are kids, and they're going to make mistakes when it comes to money management. In fact, most kids who receive their allowance on Friday afternoon will find themselves penniless by Friday night. When first giving kids an allowance, give them some initial leeway and allow them to make mistakes. They're more likely to learn from their own mistakes than simply being told how to avoid mistakes. As time progresses, help kids learn from their mistakes if they're still making them.

* Let kids pay or contribute to a monthly bill. Another way to instill financial responsibility in kids is to give them a monthly financial responsibility, such as paying or contributing to one of the monthly household bills. While this might be too much for younger kids to handle, high school kids with part-time jobs should be able to contribute each month. Even if parents provide the money to pay the bills, allow kids a month or two to pay the bills so they can see and experience realistic money management each month.

* Help kids create a budget. Budgeting is a money management tool many adults fail to grasp, so teaching kids how to budget can be an especially valuable life lesson. Again, this is a lesson best taught to high school kids, who have their own income but need help managing it. Parents can teach kids that budgeting involves determining needs and wants, and how handling a budget properly can actually afford them more finanical freedom in the long run.

* Take kids food shopping. Bringing kids along to the grocery store can also provide a valuable avenue to teach kids money management. This can be especially valuable to kids about to leave for college, as they'll soon be responsible for feeding themselves. By taking them to the grocery store, kids can see how cooking for yourself is a much more affordable option than routinely dining out, which in turn frees up money for other financial endeavors.

* Encourage older kids to open a checking account. A checking account can also be an effective way to teach older kids about money management. Teach kids how to balance a checkbook, and open a joint checking account with your children so you can periodically check in and see how your kids are spending their money. When receiving a monthly statement, go over it with your kids and point out both the positive and negative spending trends kids exhibit.

CAPTION: Parents can instill valuable money management lessons in children before they pack up and head off for college.

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