The question of the week at the Women’s Personal Finance Network is how to raise financially responsible children. This is something I am starting to think about more and more as my kids get older. My son is three, and I wonder if I should be actively doing more already to help him understand money and the role it has in our lives, and how to be responsible in the choices he makes with it. I have started doing this in small ways, but I don’t have any kind of overall plan, and he doesn’t get an allowance or anything like that yet.
One principle I know already that I want my children to understand is that save has more than one meaning. I grew up with an idea that you spent money or you saved money or you gave money away to those less fortunate, but I only thought about “save” in the context of saving for something, a material something, and so really, saving was a form of long term spending for me. I want my children to understand the idea of saving “just in case”, as well as saving for the very far off future (ie retirement), not just saving for short term goals and wants.
So how to teach my children that? I have two ideas. One is modeling that behavior in my own life and involving my kids in understanding it. I don’t want to involve my children in the nitty gritty of our financial management, for I personally don’t feel that’s appropriate for them. But I do intend to explain to them and show them in general terms how we save money for short term things, how we save money in case of the unexpected, and how we save money for the far off future so that we can retire and live comfortably. And of course, help them understand compound interest! It is like magic but with money. Time is on their side!
My other idea about teaching this concept to my children is to create their own ways to save their own money that is more self-directed (with guidance of course). I am really interested in maybe one of those piggy banks that has different compartments for spending, saving, investing, and giving money for when they are young. Then when they are older, opening bank accounts for them and even an IRA when they are actually working, and giving them incentives to deposit money in them (maybe some kind of matching parental contribution of sorts). I haven’t thought this through all the way but since my kids are 3 and 1 I have a little more time to work out the details.
And I need to read a good book about kids and money. Maybe I should put one on my Christmas list. I was thinking about a book The Simple Dollar recommended, The First National Bank of Dad. Although I’d like it better if it was called the Bank of Mom .