There isn't a better way to improve your personal money habits than teaching basic financial skills to your children. In the first of this two-part series, Jeffrey Strain explains the benefits.



The majority of adults reading this article have probably never had any formal financial training. It's always seemed rather odd to me that high schools and colleges spend years teaching us the skills we'll need to get a job so we can earn a living, but they don't spend a single hour to teach us how to responsibly handle this money once we begin to earn it.

Any adult who has run into financial difficulty has wished that while they were growing up they'd been offered some type of lessons related to personal money management. Since most people were never given this opportunity at school, and were even less likely to learn these skills at home where family financial matters often rank higher on the discussion taboo list than sex, personal money management skills for many formed through a less desirable mixture of personal experiences, friendly advice and costly mistakes. Given today's realities, it can be reasonably argued that teaching children how to manage money is as important as teaching them any other life skill they'll need as adults. By not taking the time now to teach your children how to responsibly save, spend, invest and budget, you'll not only set them up for financial turmoil when they become adults, but you'll risk your own money in the event you're forced to bail them out of financial trouble.

Making Allowances
For children to truly learn about money, they first need to have some of their own. Most children's initial foray into money-related skills comes when they begin to receive an allowance from their parents. Most money experts agree that allowances should begin sometime between the ages of five and seven. Child psychologists advise that allowances shouldn't be dependent on doing chores (chores shouldn't be viewed as a way to make money, but as an expected family contribution), or to be withheld as punishment (unlike adults who have alternative ways to earn money if they lose a job, children don't, and arbitrarily taking away their income defeats the purpose of having them plan and budget wisely).

Many parents make the mistake of making their children's allowance simply extra money for them to buy a few personal items, while the parents pay for all their children's daily needs. Unfortunately, this only reinforces in the children's minds that money is always miraculously available for all essential things in life; a terrible myth which many young adults quickly learn is false the hard way.

Instead of giving a set amount of disposable income each week to your children, it's better to sit down with them once a week and mutually decide how much money they'll need that week to cover all their expenses. Essentially, you'll be creating a weekly budget with your children, a valuable lesson which will help save them from one of the most frequent financial potholes adults with no personal financial training fail to navigate. Your children's weekly allowance should include money for all their necessities such as lunch money, school supplies, club and lesson fees, phone costs and even their portion of the cost for their medical insurance. If your family goes out to dinner once or twice a week, the estimated cost of your children's meals should be included. Basically, any expense which is directly related to each child should be included, with a set amount of additional money added on for non-essentials of each child's choice.

Next week: Teaching your children to save.

Reprinted by permission of Kansai Time Out.