Teaching Children Financial Responsibility

Physician's Money Digest, October 2005, Volume 12, Issue 14

Money

There's a belief that many physician-parentsfollow: you want your children to have it betterthan you. But as Jean Chatzky notes recentlyin , how do you indulge your childrenwithout ruining their ability of becoming financiallyresponsible adults?

Give Children Choices

It may sound like a Crosby, Stills, and Nash song,but it is important to teach your children well, andthat means how to make good choices. In order toinstill fiscal responsibility, Chatzky says children firsthave to learn responsibility in general.

Start by allowing a young child two choices, such aswhether to wear the blue jeans or the black jeans toschool. As they get older, give them three or four choices.Once your child decides, he or she must learn totake responsibility for that decision. If your son choosesthe blue jeans, you must not allow him to change.

Provide an Allowance

American Demographics

It comes as no surprise why children and teens askfor so many things. According to ,the average 21-year-old has seen or heard23 million advertisements. To help stop your kidsfrom nagging you every time they want a toy orgame, provide them with a regular allowance so theycan learn how to save and spend their own money.

One caveat:

How much of an allowance should you provide?Chatzy suggests starting with $1 a week for childrenin kindergarten and increasing by $1 a year throughelementary school. Don't link theallowance to household chores, which allows yourchild to opt out of the allowance if they don't do thework. Then they're back to asking you for money.What's more, don't pay large sums of money fordoing small chores around the house. If you do, childrenwill expect that same pay scale elsewhere.

Wait to Buy and Save

When children and teens make purchases withtheir own money, they're more likely to appreciateand take better care of their possessions. A toy orgame may cost more than your child's allowance, butthey will be able to make the purchase if they learn tosave for several weeks. For larger items, you couldoffer to match the child's savings, sort of like a 401(k).

As children get older, you should teach your childrento shop around to get the "best buy" for theirmoney rather than making impulse purchases. Agood rule of thumb: the younger the child, the shorterthe waiting time should be.

Part-time Jobs for Teens

For teens, money truly becomes their own whenthey begin earning it through work outside the home.Weekend and after-school jobs provide teens with theresponsibility of tracking their own finances as wellas maintaining a job. A recent study by Roper ASWfound that people who worked during high schoolwere much more likely to be knowledgeable aboutmoney and achieve their financial goals.

Practice What You Preach

Children imitate what they see, so it's importantnot to be hypocritical if you want them to learnfinancial responsibility. For example, if you promiseyour child an allowance, stick to it, and make sureyou pay it on time. Otherwise, children may becomeadults who do not adhere to bill due dates.

Most importantly, if you want to encourage yourchild to save at least part of the allowance you provideor the money they earn, set a good example.Seeing you save will encourage them to becomemoney-smart kids.