ANSWERING YOUR CHILDREN’S FINANCIAL QUESTIONS

For many of us, our earliest lessons about financial decision-making were learned by watching our parents’ behavior. Therefore, one of the most important gifts that we can give our children is a sound education in how to manage their finances. But instilling sound financial values in children can be a challenge: Your messages will have to compete with constant input from their peers and the media. Sometimes, the best opportunities to help instill a healthy attitude towards money come at unexpected moments—for example, when your children ask you a question that catches you off guard.

“Why can’t I have a new bicycle/ iPod/pair of sneakers like the other kids?”
There’s nothing wrong with telling your children the first thing that enters your mind, which is probably that “everyone else does” is not a good reason for any action. Making children understand that decisions have to be made based on their own personal values and circumstances is a valuable lesson in itself.

But instead of ending the discussion there, try discussing with your child the concept of wants versus needs—that we all have things we want, but sometimes must make choices and sacrifices in order to pay for the things that we actually need. As an easy exercise in financial decision-making, ask your child to make a list of the things they currently want. Together, prioritize the list and ask your child to choose the one or two things that are most important. Then, you can wait for a birthday or special occasion to buy it for them, or you might ask them to chip in and contribute something to the purchase. If they aren’t old enough to work and don’t receive an allowance, perhaps you can work out an arrangement where they trade household chores for payments toward the item they want.

“Why can't I decide how to spend the money I earn?”
If your child has started earning money and you are encouraging them to save a portion of their salary, your suggestions might be met with some protest. If you’re trying to teach a child financial values, it is appropriate for you to have some say about how your kids manage their money. After all, it is never too soon to teach your children that not all income is discretionary.

One solution is to start a college fund to finance your son’s or daughter’s higher education, and require them to contribute a set amount to it. It’s easier for a child to accept putting a portion of the money they earn towards a tangible goal. By contributing to their own college fund, it’s doubtful that your child will take their education for granted. It will also help them understand the value of starting early and saving regularly to reach a financial goal.

“You go out and spend your money on new things all the time. Why can’t I?”
This could get complicated depending on the reality of the situation: Either your child has little concept of your expenses, and what appears to them to be indulgences are actually necessities; or they’re right, and you’re not setting a very good financial example. Remember, “do as I say, not as I do” is not terribly effective in any circumstance. Your children will be watching you to see how you handle your financial situations to determine whether you’re really serious about how they should handle theirs.

So pay your bills on time. Keep impulse shopping to a minimum. Take the time to develop a realistic plan that will help you achieve your own long-term financial goals. You will be teaching your children a valuable lesson that they will help them again and again in their own lives.