Parents, or other adult guardians, can be financial role models for their children in many ways. Since children often copy what their parents do, it is beneficial for parents to practice, as well as preach, good financial habits. In times of plenty, or in times of recession, children with a grasp of sound financial practices will more likely grow up to be financially-savvy adults.

 

In an article at CNNMoney, financial industry experts believe that a person’s spending and saving habits are shaped between the ages of 5 and 7 years of age. Moreover, according to Women & Co., 85% of women in the Baby Boom generation believe they would have been financially better off in life, and know more about investing, if they had had better financial role models when they were growing up.

 

Children can earn their own money through allowances, chores, summer jobs, birthday or graduation money, or helping in a parent-owned business. Children and teens have tremendous buying power, and national retailers and merchants are highly aware of this. Follow some common sense rules to encourage your children to be financially responsible.

 

Set up a Youth Savings Account

 

Children under the age of 21 years can open a youth savings account of their own, co-signed by a parent. When a child has a safe place to put money, he or she can learn how to save it, how to retrieve it when it is wanted, and how it will earn interest. Be sure to set guidelines on how much money to withdraw, and when.

 

Give your child an introduction to how banking works by going with him or her to the bank when you do your own banking. Also show your child the bank statements to see how saved money is growing over time. Also, show your child how to use an ATM card.

 

Be sure to select an account with:

 

• a low minimum deposit, such as $5 or $10,

• no monthly service fee,

• a high interest rate,

• an ATM card,

• a newsletter or online activities site that teaches kids about banking.

 

Credit Unions may offer better interest and lower fees. For example, MidWest Financial Credit Union offers separate youth savings accounts for children ages of 9 years and under, ages 10 to 14 years, and ages 15 to 17 years. Check your own local credit union to see if they have similar accounts.

 

Don’t Buy Your Child Everything He or She Wants

 

Children are experts in pestering parents for every little thing they want. Resist the urge to buy that toy or item and instead suggest that the child save up her money to purchase it on her own. Don’t be tempted to make it easy for children to acquire things without learning the value of money.

 

When a child uses his own money, he learns:

 

• that money has value and needs to be earned before it is spent,

• to value the things that he has worked to get,

• to reject frivolous things that are not worth his own money to purchase.

 

Be Frugal in Your Own Shopping Habits

 

As children tend to copy the actions they see others do, especially adults, be frugal in your habits when shopping with your kids. Try the following things:

 

• buy items on sale,

• use coupons,

• haggle over prices, where possible,

• shop on sale days,

• use cash or debit, not credit cards,

• shop with a list and stick to it.

 

Keep Your Own Debt Under Control

 

Practice what you preach to your children by paying your bills on time. If you are constantly worrying about high debt and are sitting around the kitchen table amid a mound of bills, your children will notice and see the distress that comes with debt.

 

Set a Spending Limit

 

When older children have part-time jobs or a regular income, demonstrate to them the need for a budget and a spending limit. Let teens spend a portion of their income, but insist that most of it be saved for the future, for school, or for a larger purchase, such as a car.

 

Make Children Pay for Essentials

 

To prepare older children and teens for real world expenses, have them pay a token percentage of their earned money toward essential life expenses such as clothing, rent, car, food, phone, and Internet. Teach them that in the adult world, people need to earn money for boring things like food and rent, not just for cool things like trendy clothes, music, and video games.

 

Be Consistent

 

As with anything you teach your child, be consistent. Do not pay for a frivolous toy one day, and then scold the child for wanting another one the next day. Do not pay your teen for taking out the garbage and washing the car one week, then forget to pay the next. If your young adult is paying rent to live in your home, make sure he or she pays on time each month; if they don’t, charge them a late fee.

 

Ms. Money suggests that parents establish family rules and tasks when making financial plans, create consequences for breaking the rules, and be consistent when monitoring those rules.