Teach Your Children About Finances
"Children are a gift from the LORD; they are a real blessing" (Psalm 127:3, Today's English Version). The New King James version calls them "a heritage from the LORD." What a wonderful privilege it is for parents to raise the next generation!
When God delivered Israel from slavery in Egypt more than 3,000 years ago, He was interested in the future of the adults and their children. He wanted the Israelites to take root in their new land and prosper for many generations. This is why He repeatedly told the Israelites to carefully teach their children the things He had taught them (Deuteronomy 4:9-10, 40; 5:29; 6:2-9; 11:18-21).
When we learn to handle our money according to God's instructions, God expects us to share our knowledge with our children so they, too, can be blessed. With God's perspective in mind, let us consider some ways parents can teach their children to properly manage their finances.
How early can children begin the process of learning about money? There is no set age, but experience indicates that as soon as they learn to use money they can learn fundamental principles about managing it.
Modern marketing efforts, for example, do not exclude children. Children's television programs often contain advertising aimed directly at youngsters.
Advertisers work to create desire for their toys and other products.
Since children are exposed to advertising and experience desires for various material goods, it makes sense for them also to begin learning about money management. Understanding basic monetary concepts can be a valuable blessing that lasts a lifetime.
Consider giving an allowance
Children can begin to learn some principles of financial management if parents are willing to invest the time it takes to teach them. One way to do this is to start giving children an allowance after they learn to count. The amount of money does not have to be large; even small amounts can provide important opportunities for teaching valuable lessons.
Allowances for young children should be given regularly, at a set time such as once a week. Help your children learn to manage their allowance by depositing it in a safe place such as a toy bank, a wallet or even a jar. This is an excellent time to teach them God's principles of tithing. Have your child put aside his tithes in a separate container. Each time children receive their allowance, they should be helped in determining and setting aside their tithes. They can also count what is in their bank each time they add to it.
Opinions vary on whether allowances should be tied to chores. Some feel it's good to give a set amount with the concept in mind that basic chores should be done by everyone in the family. Others like to tie allowances to specific chores such as making one's bed, cleaning one's room and washing dishes. Others use a mixture of the two with a set amount that increases for certain chores. Whatever approach a family employs, learning to manage the allowance, and showing that work has its rewards, is where the real value lies for young people.
To lay a simple foundation for budgeting as an adult, children can learn to evaluate and plan their purchases. One way to do this is to have children make a list of items they would like to buy. These may be small items such as stickers, gum, snack foods or special toys. Parents, of course, should monitor choices to make sure they are safe and appropriate.
The next time you go to a store that carries the items on the list, have your child record the prices. When back at home, have him count his money before discussing which items might be purchased now and which will require more savings. Let him decide if he wants to purchase a less-expensive item on his list or wait to accumulate more money for a costlier item. When he is ready to make a purchase, take him to the store and help him count out the money to make the transaction.
While at the store, it is not uncommon for children to decide they want something that costs more than they can afford. When this occurs, loving parents will generally decline to provide the extra funds. It may seem like a tough lesson for a child to learn, but many things about life are better learned early when the consequences are minor. The same lesson applies when children spend all of their money on one item and then do not have additional funds for other things they would like. Experience is an effective teacher.
As children become more conscious of time, parents can point out how long it will take them to accumulate the same amount of money again in their bank. This teaches the valuable concept of planning for purchases.
This process does take a lot of time, but the result is worth it. Children who learn to manage money at an early age will be spared some hard lessons later in life when the consequences are greater.
As children mature, their allowance can be increased and they can be given the responsibility of purchasing certain personal items. Some parents find it helpful to give their older children a clothing allowance at regular times throughout the year—such as the beginning of a school year.
They allow their children to choose the clothes they want to purchase with that money, as long as it fits mutually agreed-upon style guidelines.
Although poor choices can lead to a limited school wardrobe, this, too, can be an effective teaching tool. It is better to let children live with the consequences of their decisions at this age than for parents to bail them out financially and deny them the opportunity of learning a valuable lesson.
Saving money is another important concept parents need to teach their children. One way to do this is to open a savings account in the child's name. Depending on a parent's expertise, older children can also be taught about other types of savings and investments such as money-market accounts, stocks, bonds, mutual funds and precious metals.
Teens can learn how to evaluate and track the value of these kinds of savings and assets. They can also learn the value of compounding interest and learn to set aside funds for the inevitable emergencies that occur in everyone's life.
Another especially important area older children need to understand is credit, including its benefits and potential pitfalls. Regrettably, many adults have not yet learned these lessons (see "Financial Black Holes"). If you have learned to use credit wisely, teaching your children this information will put them years and perhaps thousands of dollars ahead in life.
It is also wise for older teens to learn how to plan for retirement. Proverbs 13:22 says it is a good man who leaves an inheritance to his grandchildren. This means there must be some forethought and planning about finances to provide for one's needs later in life.
Those who begin putting funds into a retirement account early in their working career usually see their retirement fund grow to a much larger value than those of people who wait until their 40s (see "The Power of Compounding").
Some adults have been shocked with an alarming wake-up call in their 40s or even 50s when they realize they have not sufficiently planned for their retirement years. Wouldn't it be much better to have learned that lesson and been educated about the importance of planning for that stage of life while still young?
The best time to plan for retirement is at an early age when investments have more time to grow. Companies offering financial products, such as life insurance and mutual funds, sometimes offer financial advice and assistance to young people. Although it is beyond the scope of this booklet to list these resources, a few phone calls to some of these kinds of businesses can help those who wish to learn more.
Children are blessed when they have parents who love them and teach them how to manage their money. Proverbs 22:6 says, "Train up a child in the way he should go, and when he is old he will not depart from it." Take this proverb to heart and teach your children the principles of money management. You, and they, can be blessed by your efforts.
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