Instilling good fiscal habits within the relative safety of home pays benefits in the real world. And in this case, modeling good behavior is not enough.
If we want children to develop common sense about money, we need to give them an opportunity to practice. Sara Tetreault, founder of GoGingham.com, is a frugal living expert who teaches families how to make life more meaningful through thoughtful spending, smart use of resources, and efficient use of time. She shares some of her techniques for teaching children to pay their own way.
First comes the budget
Parents can begin teaching children to pay their bills as soon as they have an allowance, says Tetreault.
The foundation of good money management is living within your means. In order to pay your bills, you've got to have the funds on hand. It all starts with planning. Budgeting requires children to think beyond today's wants and needs, and that kind of long-term perspective pays off in other areas, too-like semester-long projects and college applications.
Show kids how to record the money they have coming in for the next one to three months, as well as the expenses they can expect. (No one is too young for spreadsheets!)
Kids have expenses?
Tetreault believes the key to teaching kids how to budget lies in setting clear guidelines about who pays for what.
Sit down with your children to determine which expenses you will cover and which will be the child's responsibility. The trick is to uphold the expectations you set.
"Parents have to stick to it and can't be pushovers," says Tetreault. In her household, kids pay for all their expenses up to $10, including birthday gifts for friends and going out with friends. She says this rule helps kids make tough choices.
Tetreault also thinks kids need a checking account and a debit card to help pay their own way-even when it comes to real bills.
Hello, phone bill!
Perhaps the best way to instill the concept of paying bills at regular intervals is to let kids contribute to the payments on actual bills. According to Tetreault, there is no reason kids can't pay their own bills for things they deem important. And what's more important than texting? "Parents should not pay their kids' cell phone bills," she says. "That should be the child's responsibility." Put a reminder on your calendar and email a "bill" to your kids each month.
Tetreault points out that just because you're on the "family plan" doesn't mean the parents have to pay for it. Her 15-year-old son once had to give up his cell phone when he couldn't afford it. Not only that, she made him deal with the situation on his own.
"He learned a good lesson in cash flow and how to handle overly aggressive cell phone companies who don't want you to cancel your plan," she says.
Get a virtual financial life
No sense teaching new dogs old tricks. If you're comfortable with online cash, go virtual. Many web-based services have emerged that enable kids to practice good money management while allowing parents to maintain control.
Kiboo (kiboo.com) allows kids to learn about money and set financial goals. This service also offers a charitable component so kids are encouraged to make a difference for those in need.
Tykoon (tykoon.com) is a similar site. It gives parents the ability to pay a child a daily, weekly or monthly allowance, which is tracked and allocated across saving, giving and spending buckets, based on settings you determine.
"Better for kids to learn that items cost money when they're living at home and some simple money mistakes won't break the bank or cause bankruptcy," Tetreault says.
Or, worse yet, move back in with their parents.