No one is born an expert in finances. Financial capability is a skill that must be acquired, and in most cases, children learn it from their parents.  But it appears that these lessons are often inadequate, leaving children unprepared to manage their own finances responsibly.

Using, saving, investing and sharing are four useful money practices that can be implemented today by parents and caretakers to teach children the essential concepts and skills of responsible money management.

Practice #1: Learning the value of money - USING
We are programmed from birth to react without thinking about long-term consequences, and this often manifests itself in our buying behavior. It’s necessary to explain to children that patience pays off by stressing the importance of delayed gratification. There are many creative ways that this can be instilled with daily tasks around the house.

Example:
Discuss the difference between wants and needs. Do an exercise with items around the house and work with your child to categorize them in two columns, using a piece of paper titled “wants” and “needs.”  For example, food in the refrigerator would be in the “need” category, whereas games or toys would be in the “want” category.  Also, consider setting an appointed date before meeting your child’s next need or want. For instance, before buying the next toy, agree with your child that he must wait a week.

Practice #2: The purpose of having clear goals - SAVING
To be effective, savings should be done with a clear goal and has to be measurable, attainable, realistic, specific, and undertaken within a determined timeframe. Work together to prepare a list of all types of income, including your child’s allowance, money gifts, and any pay she may receive for housework or chores. Next, prepare a list of all expenditures, including snacks, games, toys and activities. The ultimate target of this exercise will be to allocate the total amount earned into use, save, invest, and share buckets. 

Example:
If the difference between income and expenditure results is positive, consider “matching” the difference to double the savings. For example, if your child saves $5 dollars a month, consider giving her another $5 for saving; if the result is negative, consider a “loan” with interest to cover the shortfall, or requiring the child to go back and eliminate certain expenses.

Practice #3: Putting your money to work - INVESTING
Once money has been saved, steps must be taken to ensure that it continues to grow. It’s important that children understand the basics of investing, which is essentially putting their money to work to make more money.

Example:
Have each family member buy a share of stock that he or she is familiar with, such as Apple or Disney.  After a month, share and compare the results in terms of market value and performance.  For older children, encourage them to follow “their” company online and to take a look at the company’s annual report.

Practice #4: The multiplier effect of giving– SHARING
Kids should recognize that income is not just used, saved, or invested, but also can be shared with others, whether it be one’s own family or the community in which they live. Sharing your own time and money is a great opportunity to model this for them. Allocating a percentage of your hard earned dollars into a giving bucket results in a multiplier effect—where both giver and receiver are benefited.

Example:
Have your kids help plan for and participate in family vacations or reunions, where necessities like lodging and food must be shared, and include them in the budgeting process. Take alternative vacations to save money, and involve your kids in the process of selecting a charity to which you can donate the money saved. Have the kids share their toys by choosing one or two to give to the local toy drive during the holiday season.  Talk to your child about what the donated toy will mean to the recipient child.


Bottom line:
Parents and caretakers shape most of a child’s attitudes about money. It’s important to give children an appreciation of all the uses that money can be put to, beyond today’s spending on wants.  The best strategy is to discuss his allowance before he can spend it, and categorize it into: “use, save, grow and share” buckets. This strategy offers a combination of tasks, motivations, and sound practices that become the financial training wheels needed before he can ride off on his own.