Personal Finance for Kids

Teaching the concept of personal finance for kids is an ongoing challenge for parents that requires finding effective teaching methods. Unfortunately, money sense is not a main feature of the mainstream school curriculum.

This is beginning to change, but the responsibility for a child's money management education still lies largely with parents. It can be hard to know where to begin in terms of what concepts to teach, in what order and how to get ideas across.

This can be particularly difficult with teenagers who live with tons of peer pressure and may demonstrate a defiant attitude toward learning anything from a parent.

But as a parent, you have the opportunity to ingrain positive financial habits in your kids from an early age that will help them avoid debt troubles later in life. Use these ideas and tools to start teaching your kids the basics of personal finance management now.

Fundamentals All Kids Should Learn

All the same fundamentals of managing your money as an adult can be applied to the lives of your kids on a smaller scale. For instance, if you give your kids pocket money on a regular basis, you can use this to explain the concept of a fixed income. It's a little harder to explain expenses to kids, since they generally don't have any fixed expenses. But if your child buys something regularly every week, like a school lunch, you can use this to explain a fixed expense.

Here are some other topics to you may want to cover as they relate to kids and money.

• Part time jobs—this is obviously more relevant for teenagers, but getting them into the workforce helps remove their financial dependence on you and teaches the value of money.
• The concept of interest can be taught by offering to increase your child’s weekly allowance if they can hold onto a certain amount of money without spending it.
• Savings—you can open a savings account for your child from a very young age and start by making your own contributions directly. This allows kids to learn about bank statements and start to see the effects of compounding interest over time.

Personal Finance for Kids—Avoiding Credit Dependency

The first rule of educating your kids on personal finance management is to put away your credit card. Bailing them out every time they "need" something creates an unhealthy sense that money appears out of the blue for every expense, and will make kids more likely to depend on credit themselves as they get older.

If you use your credit card regularly, make sure you explain to your kids that it isn't "free money". Make it clear that you're borrowing money on a short-term basis for the sake of convenience, and you pay your bill every month to avoid extra fees and interest expenses. If you aren't using your credit cards well, lead by example and sort out your own personal finances first.

Personal Finance for Kids—Tips for Teaching

Of course, you should always try to adjust lessons and language to the level your child understands. Whenever you can, use examples that involve ideas kids are already familiar with. For a young child relating the idea of savings to an episode of their favorite television show can make the teaching process a lot easier on you and them.

The same applies to older kids just be careful about trying to use their lingo as most parents do not fully understand the latest street talk. With teenagers it is best to stick to everyday adult language that you understand.