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Wednesday, July 3, 2013

You reached this page because you care about the future of your children. And you sense that the relationship that children have with money is very important for achieving success in life. Probably because given your experience, you had wished that your parents speak to you about money and how to relate with it, and this information could have given you mechanisms to make your life easier. Therefore, I tell you what you do to explain your children how to relate to money, how to handle it, how to keep and increase it and, finally, how to be ready to live in a world where money governs everything, will be for them invaluable help and probably somehow that will mark the success or failure of them in life. I invite you to continue reading this article from a person already retired, with three successful children and who had wished that his parents had taught a little more about the better way of relating to money.

This article is not a static information. On the contrary, I am constantly enriched it by the experience that I gather from other parents who have been about the same. Once again I invite you to read it calmly because its value is inestimable and to come back from time to time to learn new experiences on this topic. In any case widely I’m very grateful for your attention. Well, let’s go.

  • Children and money

    Children of our generation and mainly children in general don't have any experience with money and don't really know the true value of money. Some kids grow to be up until they are an adult and still don't know the value of money. This could be because the parent's didn't teach their kids the true value of money.

    What is the problem with this? What happens when a person reaches adulthood and completely ignores the real value of money? In which can affect his/her performance in life this lack of value for money?

    Obviously, not knowing the true value of money profoundly affects the performance of a person throughout his life. If the person is not able to measure this value and to understand that money does not grow on trees and that you have to make a big effort to get it, chances are that he/she squander it, regardless of how much have been the cost to win it.

    They are those people that we identify easily because while managing much money in their life by any circumstances that have been submitted, they are unable to keep it or even save it, spending it on unnecessary and worthless things, and probably reaching midlife without a penny in pocket to meet the needs of a person already in retirement status or unable to work due to their old age.

    Ideally then would be that at a very young age, our parents should begin the task of our education to teach us the real value of money, and without falling into covetousness or greed, we could have a good relationship with money and know the basic elements or basic actions that must be followed to preserve and multiply our money, which will result in our tranquility for the future and that of our family.

    Never is too late to start and in this article we will discuss some tips to teach our children and grandchildren the best way to relate to the money and do it a lever to ease our path in life.

  • How to teach money to Children

    There are many ways to teach kids the value of money that is often avoided by parents because of how busy they are, or they don't think that it is necessary, when it could make a huge impact on their child's life.

    A huge part on how to teach kids the value of money is the way you raise your child. If you raise your child simply giving them everything they want and spoiling them, finally they will end up thinking that things have no value, and that it will be enough to ask them speaking out, and in a magical way these things will be giving.

    Teaching your children can be difficult at first and your children may not like it, but they will adjust and definitely thank you in the long run, and you will feel like a proud parent when you see your children succeeding in life. First, for teaching children the value of money, you need to let them know money doesn't grow on trees, so if they want money from you and expect it for free, don't give it to them.

  • Need and Want

    It is very important that you propose yourself to act in the sense of getting your children to learn these lessons about money:

    • Understand that when it comes to spending money they have to sit down to think about it and set priorities to have better decisions.
    • Understand that when they spend in something, there will be less money available for other expenses or needs.
    • Recognize the difference between need and want.

    Ideally is asked to them to make a list of things they want or they would like to have. Then tell them than they have to use the allowance or a special "limited" assignment that you will give them to try to meet these desires. Sit down with them and ask what they most wish. Having clarified this point, ask them to investigate the cost of this first good or service that they want more. Once investigated, have them subtract that cost from the allowance or special assignment. Then ask them than once already covered the cost of the first good or service to be bought to show now the second good or service they want and repeat this process.

    In this process they will analyze its possibilities and desires. They will have to stick to the amount available and at the same time decide what things or services they want more. There will be a process of negotiation between what they want and what they can acquire. Do not interfere in this process. They themselves will change their priorities taking what they see they can acquire and leaving the rest for another time. Explain them that the next month they will have again the allowance to be able to buy a new thing that they can not buy now. Let them to return to their decisions to reassess their chances.

    Once they have made their decisions you can take part. Note that the first two ideas above have been studied by them, I mean, they have had to negotiate while training in the handling of the first two things they need to understand.

    How do you intervene? Discuss with them the decisions. Let them see things that they really need and things that they simply want. Try to talk with them to discuss their ideas and try to teach them to meet what is needed first and leave for another time what is needed next, for the next allowance or the next assignment, and to left what is really only a wish but not a necessity.

  • Saving

    Once the children have understood the first part in relation to need and want, they can progress to a second phase in which you teach them the concept of saving. In this should not have any hurry. What we want is that they learn to handle the concept of money. Allow time for the first part to be understood. Six months, a year or even two is a perfect time for them to feel comfortable with the concept of need and want and then we can move to the second part, I mean, saving. That gives them time to mature and know how to manage its relationship with money.

    Now it's time for them to learn:

    • To recognize how importance is saving and having an emergency fund for contingencies.
    • How to set up a savings plan in the short, medium and long term.

    For this we need to generate a necessity. A need that should be covered in a special occasion like a birthday or Christmas. Listen to them talking about what they would like to have or what they would like to make that cost some significant. For example, an expensive electronic equipment or the ability to make a trip to a paradise amusement park, as those in Orlando.

    Tell them that you would like to fill this possibility but your resources are limited. In simple words, explain them that you can not assume that spending completely and the only way is if they would bring some money they manage. Sit with them and calculate the total amount to be required and then have them to know that you can absorb, probably but slowly, a 50, 60 or 70% of the spend. But the difference must be covered by them. Tell them that you can play your part in 12 payments or monthly installments and if they are willing to give their share in the same way. If you reach a deal them, then buy a piggy bank and monthly put your part and ask them to deposit its part. This will continue for 12 months. Talk with them about how the fund grows and that ultimately, it will give the money they need to get what they crave.

    Through this mechanism repeated for one and other things they will learn the concept of saving to meet future needs or desires.

  • Fixed Expenses

    Children must identify and understand the importance of the existence of fixed expenses that must be covered regularly and without appeal.

    We all know what are the fixed expenses. But do children understand? As fixed expenses can not be delayed, they, at an early age, should understand this concept and is for us to teach them how to deal with this fundamental part of our daily work. First we have to teach them what is a fixed expense. And then teach them that to avoid a financial collapse, for them we must use simple words like having no money to buy even a candy, we always have to follow the rule that fixed expenses can not ever go beyond 50% of our revenues.

    To do this we have to make certain changes in the allowance of children. Let us point out that we will increase its allowance in an amount exactly equal to a monthly contribution that they must give to pay TV subscription. We have to explain them that television has a monthly subscription and we want them to bring their allowance, such as 20%, to partially pay this service. But because we don’t want to affect its fund, we will raise it exactly this amount. Each month they must put this 20% and you will put the remaining 80%, and if possible you will go with them to pay for the service or make payment online service altogether. Let them see that the money of the subscription had to be paid.

    By this simple process, children become familiar with the concept of fixed expenses that must be covered each month from its fund. Later we can then add another monthly expenses that affect them directly, such as paying a small percentage of the monthly school.

  • Ability to prepare a budget for an event

    This topic is of importance. Even we, the adults, complicate ourself when having to prepare a budget for an event. We fall short for not including everything needed when planning an event. Imagine how convenient it would be for your children start driving budgets from an early age. This learning will help them throughout life because the need to prepare a budget is unavoidable at any time.

    The first thing to look for is an event for which you have to make a budget. What about birthday of one of them. Involve your children in planning a birthday party. Don't do it alone. Invite them to intervene at all stages of the budget for learning. After three or four birthday they, that learn fast, will be ready when they have to make a budget in the future.

    Start by sitting and telling them you are planning a birthday party and you have to optimize money (use a phrase simple, for example, we will make a super party spending as little as possible), then is time to think what we need to make the party.

    Buy a notebook and name it: Budget of the birthday party. Give them the notebook and a pencil. Begin launching ideas and tell them to copy in the notebook. Launch an idea and ask them what else we need. You could start with: Who do we invite? Let them make a list of your guests. Continue with: What do we offer? Start with cokes. And allow them to complete the list of necessities. At last you will add things that they forgot. Examples: Where do we sit all these friends? Do they come alone or with their parents? How many tables and chairs do we need? They have to analyze and answer all these questions and have notes on the book.

    When the list is complete ask: Is that all? Have we forgotten something? They have to answer these questions for themselves and write notes on the book. Tell them is time of the hardest part. Prepare a list of materials required for the party. Ask questions and let them to think and answer. How many glasses of coke and hot dogs need a guest? Give them chance to discuss among themselves. If you involve some friends of them it makes the work enjoyable. Try with: how many hot dogs have you eaten at a party? Were you sick?

    They now know how much consume each guest (child or adult); is time to make the bill of materials. They must write in notebook something that help them to practice math and learning that it is necessary:

    Material Children (100) Total children Adults (30) Total adults Total
    Cocacola 4 glasses/child 400 glasses 2 glasses/adult 60 glasses 400 glasses
    Hot Dogs   2 hot dog/child 200 hot dogs   1 hot dog/adult 30 hot dogs  230 hot dogs

    As they move forward they will learn all about budgets.

    Ask them: How many glasses gives a Coke? Let them respond. Bring a big Coke and a glass and let them to see how many glasses gives a Coke.

    Eventually they will, by themselves, learn that 30 2-liter Cokes are necessary.

    Do the same with everything. Candies, souvenirs, balloons, etc.

    The budget must be made in time to allow children to learn without racing the clock. Take your time, if possible four to six weeks before the event, so that they are involved in the planning and preparation.

    Having the bill of material ready it's time to put prices. Let's kids being involved in this matter. Learn how to call a provider and explain they are preparing a birthday party and need prices. Have them check various prices. Teach them prices vary from vendor to vendor. This is important. They will learn how to get prices online, visiting stores, calling by phone, etc., They must learn how to get better prices for what they need and to tell the provider: if I buy 40 Cokes it is possible to have a better price for each bottle? Let them learn that prices could be lower purchasing more units. Don't worry. They are spounge and learn fast.

    Let them prepare the final budget. There should be an item for each consumable good indicating quantity, the best unit price achieved, the total for the good and the vendor name. And once totaled the final amount needed to make the party.

    When they tell you the final amount of the budget you will teach them a new lesson. Tell them it is too much. They have to lower the estimate by 10% for example. And let them to reevaluate everything to reduce the items and quantities as necessary to meet the budget that you had planned.

    After final adjustments go with children in the work of contacting suppliers and make purchase orders. Let them to see how money is spent. Upon completion you will have what you want. They will be ready to make a budget for an event and put it into practice. Go ahead and good luck!

  • Chore list for children

    A perfect way to teach younger children the basics of how money works is to have them earn it. Setting up a chore list for around the house is an excellent solution for children at a young age, such as taking out the trash, cleaning their room, making their beds and so on.

    If the children do the work correctly, reward them with a small amount of money. If the children do not do their chores correctly, you shouldn't reward them and deduct, telling them why, some of the money from their allowance; this will teach them that you need to work for money and you cannot do a bad job on the task you are assigned because this might result in not getting paid in the real world.

  • Kids Allowance

    Now that your child has worked for their allowance and they have some money, next time you go to the market or store and the child wants something such as a toy or candy, have them buy it themselves from the money they have earned. This is a great way to teach kids the value of money.

  • Child Bank

    Another very serious part of teaching the value of money is to teach the child to save his or her money he or she has earned, instead of spending it on things that are irrelevant. Get a "piggy bank" or something alike for your child to deposit a certain amount of their allowance each time.

    The child will get used to saving money and learn that is an important part of life, so when he or she gets a real job in the future, a part of their pay check will be saved into a bank account instead of being used to spending their money right when they are paid. It is never too late to teach kids the value of money, it is a very important part of their life and you could make a huge impact on it.

  • Teach children to save

    A nice way to teach your kids about how to save money is using what is called a Family Virtual Bank. At the same time they think it is a game, they are learning how to be ready for the real world. And you know the real world is like a jungle.

  • Some interesting videos from YouTube about this theme

Image courtesy of Arvind Balaraman at