Tips for raising money-smart kids

There is growing awareness of the need to help children develop healthy financial habits at an early age. Schools are starting to add financial literacy to the curriculum and even billionaire sage Warren Buffett recently launched the Secret Millionaires Club, an animated series that teaches kids about money and helps them become more entrepreneurial. The key to raising money-smart kids is to use everyday experiences as teachable moments.

Here are some tips for various ages and stages to help raise money-smart kids who grow into financially-savvy adults:

Ages 5 to 12
The transition from toddler to student is a great time to teach the basics of fiscal responsibility. If your child is invited to a birthday party, set a budget, take her to the store and have her choose an affordable gift. When you go to the grocery store, show your kids the shopping list and your family’s weekly grocery budget. If they whine for expensive cereals or sugary candy bars, explain the difference between needs and wants.

While some parents are reluctant to give children an allowance for doing chores, many financial experts stress that a weekly allowance can lay the foundation for financial responsibility and help young people see the connection between money and work. You can take it one step further by stipulating certain percentages of the allowance be allotted for spending, saving and charity.

The teen years
As they develop their own style and identity, teens start to request the latest ‘must-have’ smartphone or sneakers and their persistence can wear you down. In fact, in a recent survey 1, 45% of kids said that ‘begging gets parents to give in to their requests’. Stand firm and have an honest discussion about your family’s budget and how much, if anything, is allotted for luxuries. Save these items for birthdays or ask your teen to help pay for them with their own savings or income from part-time jobs.

Teenagers living at home can also start to contribute to regular costs like dining out, cell phone bills, music lessons, etc. It doesn’t have to be a large amount; it’s about helping them realize that nothing is free and preparing them for self-sufficiency later in life.

As teens head to college, they often sign up for their first credit card. When it arrives, take the time to go over the fine print with them, explain how interest is charged and the consequences of not paying the monthly balance. If they run into trouble, resist the urge to bail them out. Rather, help them craft a repayment plan to get back on track.

Young adults
When parents have struggled with debt themselves, it’s understandable that they would want to shield their kids from the experience. In fact, in a recent survey¹, almost 40% of parents said “living within your means2 is the most important financial advice you can give your kids. But, the reality is, young adults need to start building a good credit history if they want to purchase a new car or a home one day.

If they’re striking out on their own, help them choose an apartment they can afford and show them how to manage their cash flow and stick to a monthly budget. Share your tips for cutting costs and finding deals and saving for luxuries like vacations or trendy shoes. If they live in the family home and they are working, insist that they share household costs like groceries, rent and utilities.

Young adults often come to parents for loans for cars, investments or home down payments. If you can afford to extend the loan, do so, but don’t let family ties keep you from specifying clearly-defined terms and conditions of repayment.

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Louise Armstrong

<p>Louise Armstrong is a Toronto-based freelance writer and content manager who blogs about life and work at www.louisearmstrong.com</p>