Giving children a concept of finances is critical to their development of these skills as an adult. Children need to learn as early as possible the way to manage their money, make and keep a budget and meet their responsibilities. There are several ways to accomplish these goals and to give your child the skills that will last for a lifetime of financial responsibility.
1. Start with some simple spending money
Many experts recommend beginning to give a child a small allowance between the ages of five and seven years of age. This money can be given with the understanding that the child can spend it on whatever he or she would like. In some families, the allowance is tied to weekly chores, to teach the child the value of work and give a real-world experience, and others give the money in its own realm. The decision is up to you. Some families have guidelines on the allowance, such as a certain amount must be saved or that offerings to church be taken out. These would be strongly encouraged, but not necessarily forced on a child. Letting your child experience the consequences of spending their money foolishly is part of the learning experience. When your child asks for something that is not on the radar, such as a new toy, you can suggest to them that they save their money for the desired item, giving them the skills and experience of fiscal delayed gratification and self-discipline.
2. Set up a simple budget
When your child has a goal in mind for their money; sit down with them with a notebook, calendar and calculator. Help them see (on paper) how their money will accumulate with saving and the approximate timeframe to realize their goal. Show your child your household budget (if you don't have one, this is a perfect time to make one) and explain where your money goes. In order to help your child, suggest that a small part of his or her allowance each week continue to be spent as "mad money," since complete deprivation makes it harder to follow through with goals and a little treat goes a long way.
3. Let your child see you paying bills, etc. and model good financial habits
Along with sharing the household budget with your child, it is important to model good financial habits. Try and pay bills, go to the bank, etc. with your child so that money is not a mystery. When planning a family activity or vacation, discuss in family meetings the savings goal and what areas of the budget may need adjustment to accomplish the goal. (These ideas can be suggested in a family brainstorming session and can include ideas such as, not going out to eat as often or skipping the theater and getting movies at a kiosk.)
4. Take an opportunity to make money matters play
There are several games and activities that allow players to make good financial decisions. You can play these games as a family not only teaching your child about the principles of good money management, but make fun family memories, as well. A few of these include: Monopoly, The Allowance Game (excellent), The Game of Life, and the old favorite - Payday. These allow your child to learn in a way that is non-threatening and doesn't affect their personal bottom line.