Teaching Children Financial Responsibility

Children need to learn the importance of responsible money management as early as they can comprehend it. This will help them as they mature and start to progress in the working world so that they can make sound financial decisions.

Managing money can be a complex concept for children to understand. In fact, it's something that even many adults still struggle with. However, it's important for children to learn what money really is and how it is meant to be used so that when it is their turn to enter the working world, they understand the importance of proper money management. This begins with open and honest conversation.

Cash

Although cash is becoming less and less common, it is one of the most readily available tools when it comes to teaching children about money. Obviously, you can use coins to help a young child master their counting and arithmetic skills. This is the first step to understanding the fundamental principles of budgeting. Once a child understands budgeting, they should be able to catch on to the way that credit works.

One of the best ways to teach children about cash - and earning money for doing work - is to give them an allowance. They can perform simple chores around the house for which they are paid weekly or monthly. This is a great way to establish the value of hard work as well as earning a living, which hopefully translates into a greater respect for money as a tool.

Debit Cards

These days, the use of debit card is something that many children witness, perhaps even more frequently than cash. You may not even realize how often you use your debit card on a daily basis:

• The grocery store
• The gas station
• Online purchases
• Automated Teller Machines

Children see these activities and - whether they are aware or not - and probably do not understand that the plastic cards represent real cash money. This is another reason why it is important to teach them what coins and paper money actually are. You help them understand that debit cards are attached to money that is stored at the bank - money that you earned from working - and that you use the debit card to buy things instead of going to the bank every time you want to buy something.

If you have started giving your child an allowance, you might also consider helping them start a bank account. This will not only help to reduce impulse spending (especially with teenagers) but it will also introduce them to the banking industry so that they can be more comfortable with it down the road. An older teenager might be responsible enough for a debit card too. You can even make it something they can earn.

Credit Cards

Of course, a child will see a credit card and probably think it is the same thing as a debit card, but you know that they are very different. Once they understand how a debit card works, then it might be time to teach them that credit cards work in a similar way, but with money that you have not earned yet.

Obviously, credit cards are an important component of building a solid credit history, which is the foundation for much larger means of borrowing. In fact, many advisors suggest getting at least one credit card upon reaching the appropriate age just to establish a credit history.

Credit cards also help to teach the valuable lesson of budgeting. In order to properly use credit cards, you have to know how to plan your income versus your spending. This is a valuable tool for anyone.

Loans And Mortgages

In the United States, it is nearly impossible to buy a car or home without taking out a loan. Of course, you can't get a good loan unless you have a solid credit history. This is where all the practice of using credit cards, debit cards, and managing a budget comes in handy.

Final Word

Money management is an important tool that is best learnt at an early age. This will help children learn to be smart with their money (including credit) before they are able to actually use it. Hopefully this helps them become savvy consumers.