The Simple Dollar (www.thesimpledollar.com), one of my favorite personal finance blogs, had a post on Educating children on fiscal responsibility.
The Simple Dollar listed the three main factors that he had crystallized from his research on this subject, namely :
a) Showing our children how we spend money. Showing them prices when taking them shopping, talking to them about what things cost,
b) Allow them to manage a small amount of money themselves. Maybe an allowance or some other form, but it must have clear limits and they should manage it themselves. Talk to them about how to manage it: should they buy a toy now, or save for something else?
c) Involve them in the finances of the house. Show them what you spend each month and demonstrate that you save each month. Tell them when there are financial problems and when there are windfalls.
The Simple Dollar wants to start off his son with an allowance and take it from there.
Will managing an allowance help instill an importance of personal finance management in our children?
It most certainly would.
The prime cause of being financially challenged is “uncontrolled spending.” Learning to spend within our means (i.e. spending within the allowance), will form a rock solid foundation for healthy personal finances.
I have earlier posted my thoughts on the two most important personal financial management lessons that I have learnt and want to impart to my children.
Whilst for the two elder children, I proposed that a peer group is more important now, for the younger children an allowance and its management would be the best start.
I’ll write more on this after my wife and I implement this scheme.