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Set an Allowance
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Step 4:
Be a Positive Role Model
When you give a child an allowance, he or she is likely to follow your own financial example. This, of course, can include bad habits, but it can just as easily mean a responsible approach to finances. Be aware that once kids have their own money to deal with, they'll pay a lot more attention to what you do with yours. Consider how much detail you want to share with your child regarding family expenses, and be prepared to answer unexpected questions (about how you're handling your own money) along the way.
One positive thing you can do is encourage savings. Here are some examples for doing so:
Require it from the very beginning. Purchase a piggy bank or open a savings account for your child.
If your child has money left over by the time pay day rolls around, suggest saving it.
Older kids may be especially encouraged when they see how savings accumulate and how much they can make in interest. You can even introduce them to beginning-level investments such as mutual funds or savings bonds.
Some financial institutions offer special accounts for kids, and there are even a few kid-run investment clubs out there--check the Internet or your local yellow pages to get started.
Think about telling your kids what percentage of your income you save and why, and encourage the same. Let them know when you're using your savings for something special, such as a birthday party or a family vacation.
When kids know how to prioritize their finances, they can better prepare for future goals. An allowance--complete with guidance and a willingness to let them make mistakes--can point them in the right direction.
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