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How to Use the Current Economy as a Premier Lesson to Teach Your Kids About Money Management


With the United States heading for a recession (or already in one, depending who you ask), your first instinct may be to shield your children from the news. They're kids, after all, and they shouldn't have to worry about these "grown-up" problems.

Talking openly to your children about the family's finances, and acting as a positive role model, are two of the best ways to teach your children to be financially responsible.

While this is true to some extent, you can use the country's financial struggles, as well as your personal ones, to give your child a strong foundation in money management. Experts agree, NOW more than ever is the ideal time to talk to your kids about money.

"Children are listening when we talk about money," explains Laura Fisher, ABA Education Foundation director on "With the economy as the new buzz word, it is the ideal time for parents to talk money with children. But parents need to do more than talk; they need to be real life examples of responsible money managers for their children."

What can you do to make sure your kids don't make the same money mistakes so many others already have?

1. Communicate About Money

If you keep your family's finances completely secret from your child, they won't know what to do when they leave home. Ideally, you should involve your child in your family's budgeting and day-to-day spending. For instance, if your family needs to cut back on spending, explain that to your children and ask them how they think they could help to cut back.

2. Explain Needs Vs. Wants

Unfortunately many people are facing this reality head-on, as they must sacrifice "wants" in order to keep getting the "needs." From an early age, teach your kids that you must prioritize spending on the things you need, savings and giving to charity. After that's done, you can decide if you should spend on any "wants."

Above all, teach your child that there should be limits to their spending. If you give them an allowance and they spend it right away, don't bail them out with more money to go out with their friends later that night.

3. Teach Your Kids About Credit

Children may not understand what happens when you swipe a credit card at the mall. It's up to you to explain that although using credit can help you make purchases, there is interest charged, which means there is also risk and responsibility involved.

4. Warn Them About Spending More Than They Earn

As you teach your kids about credit, explain to them what can happen if you make a habit of spending more than you earn. It can quickly spiral out of control, and you may end up losing everything.

5. Encourage Them to Put Money in Savings and Give to Charity

In other words, as you give your child an allowance or bit of cash, teach him how to budget. Explain how much money you put each month into paying for bills, saving and giving to charity, and what you do with the money left over.

Kids must understand that, along with having money to spend now, they need money to save for short-term goals, money to invest for long-term goals, and money to donate to charities or others in need.

Taking your child to open a savings account at the bank is a great way to get them excited about saving.

6. Encourage Entrepreneurial Thinking

If money is tight and your child wants money for hockey equipment or dance lessons, encourage them to think about how to earn it doing something they enjoy. An older child who is skilled at playing an instrument may be able to tutor a younger child, for instance, or your teen may advertise babysitting services in your neighborhood. Instilling this type of creative thinking in your child will encourage them to maintain this entrepreneurial thinking when they grow up.

7. Set a Good Example

When kids get older, they tend to emulate the financial behaviors of their parents. So make an effort to pay your bills on time, spend conscientiously and save proactively. Even if you've made some financial mistakes, you can still teach your children to emulate the positive steps you're taking now.

"As a parent, the best way to teach a child about finances is to be a role model," Edward Powell, chief consumer officer at in Charlotte, N.C., told Forbes. "You should show restraint with money. Your child should see you budget, comparison-shop and make regular contributions to a savings account. It's not enough to talk the talk, you've got to walk the walk."

Recommended Reading

Kids and Money: 5 Keys to Teaching Kids Money Management Skills

How (and Why) to Teach Kids to Care: What Amazing New Studies Suggest

Sources October 22, 2008 March 29, 2005

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