159288990By the Association for Financial Counseling Planning & Education

Talking to kids about money can be difficult, and teaching them first-hand about money matters is even more so. But many of today’s adults are struggling to manage money properly, and that’s not a problem we want to pass on to the next generation.

Luckily, there are plenty of hands on ways to teach your kids financial responsibility. Here are five ideas to get you started:

  1. Pay for hard work
    Most parents think it’s good for kids to do some household chores without getting anything in return, and they’re right. You don’t get paid to cook dinner or do the laundry, and kids should learn that some chores are just part of growing up.
    But on the other hand, you can teach your kids that hard work means big bucks by paying them on commission. Let them know that certain above-and-beyond chores will be paid at a flat rate. (ie. $5 for raking the leaves or washing the car) As long as they actually do the job well, pay them.
  2. Set up a saving system
    It’s okay to compel your kids to save a certain amount of money. Once you get the habit into place now, they’ll likely start doing it automatically when they’re older. On the other hand, if you let them blow all the money they earn, they’ll get into the habit of blowing through their cash quickly.
    Many families have a “spend, save, give” system, so kids learn to spend wisely, save a lot, and give generously. Have kids put a certain percentage into saving and giving, and then leave the rest available for “fun money.”
    While you’re at it, give kids a visual as to how much they’re saving. Quicken Kids is a good option, especially if you’re already using Quicken for family or business finances. But you could also just create a graph to show how much a younger child has in her piggy bank as incentive to keep saving more.
  3. Create a matching goal
    One excellent way to motivate good habits is to set up matching savings goal with your child. For instance, most teens are keen on having a set of wheels the minute they turn sixteen. So tell your teenagers that you’ll match a certain percentage of whatever they save for a car.
    This is great for two reasons: it keeps your teenager (or yourself) from going into debt for a car, and it motivates him to work hard and save more. You could also use this motivating technique to help a younger child save for a “big” purchase like a video game or new toy.
  4. Let them plan for the family
    A major issue for kids when it comes to financial literacy is understanding just how much things cost in “the real world.” The 10-year-old begging for a new toy or the teenager asking for a back-to-school shopping spree probably has no idea how much it costs to feed your family or keep a roof over your head.
    While you definitely want to avoid putting your family’s financial problems on the shoulders of your kids, teaching them about real life spending is smart.
    One option here is to give kids a budget for a family meal. Help them plan, grocery shop (or send them out alone, if they’re old enough), and prepare a meal for the whole family. (Clearly, this helps build a whole set of important life skills, as well!) Another option is to give kids a budget for back-to-school shopping, and then let them make their own choices.
  5. Allow them to make mistakes
    Making mistakes is just part of growing up, whether we’re talking about learning to ride a bike or learning to manage finances. Sure, you don’t want to let your 16-year-old take on high debt to buy a beater of a car, but letting that same kid blow her allowance on a purse is a life lesson in the making.