The Importance of Training your Kids in Money Management
Although giving kids an allowance is ok, we rarely realize that it is also very important to teach them to spend it wisely. Merely giving purchasing power in the hands of children does not ensure that they gain the maturity to use it responsibly. It is necessary to train your kids in money management right from an early age.
This helps them understand when and why to save and when and where to spend. By understanding the value of money and the way to use it judiciously, the children grow up to be financially responsible adults.
Teaching the Importance of Spending Within Means
By getting kids to keep track of their spending you help them understand the importance of budgeting for different expenses. With budgeting comes the awareness that spending substantially on one item will mean less or no money for another. The limits on spending that are established in this way inculcate a habit of spending only within the means.
This habit ensures that when he grows up, your child avoids getting into debt because of over spending. Given that most Americans face huge debts from credit card bills they cannot pay back, this will be a most valuable lesson for your child.
Because of the limits on spending, your child learns to weigh different items that he wants to spend on, according to its use, quality and price. Judging the worth of different items in this way stands him/ her in good stead, when as a grown up, he or she has to prioritize expenses.
The Saving Habit
Teaching your child to manage his/her money efficiently also inculcates the saving habit. He/she understands that to buy the most desired items, he/ she will have to make sure that the allowance is not frittered away on less important things. This will also make him/her understand that by saving for long enough he/she can buy things that appear to be far out of reach with the current monthly allowance.
This is good way to teach children about the basics of banking and investing too. Encourage them to save a portion of the allowance in a savings account and show them how the money grows with time. By understanding these basics, your child will definitely learn to appreciate the value of money, and as an adult he will use his earnings wisely.