Teach Your Children about Personal Finance

If you've been paying attention over the past few years, then you know that your child's college savings plan doesn't have as much money as it used it. Maybe you or your spouse lost their job in the past year or two and you don't have enough money coming in to even cover the cost of saving for your child's education.

Whether or not it's about sending the kids off to college is irrelevant. It's more important to note that you have to teach them how to manage their personal finances. Unless, that is, you want them to live with you for the rest of your life. Since the answer to this is probably no, over the next few weeks I'll be running a series on how to teach your kids about personal finance so they can manage their own finances and become financially independent and responsible adults. Some of the tips may need to be modified slightly depending on how old your kids are, but the earlier you start teaching, the better it will be for them and for you.

Tip #1 Create a plan

The only way you can teach kids about managing their money is to make a plan that helps to guide them in money management. Children typically earn money in a couple of ways--chores, birthday and holiday money and a part-time job when they become teenagers. So instead of letting them spending every dollar they earn or receive as a gift, create a plan where some of the money has to be used to pay for one of their own expenses or put into a savings account that they are not allowed to use.

For example, a teenager may be required to pay for a portion of her car insurance payment or put gas in her car with her own money rather than money from Mom and Dad. Pre-teens may be required to put 10% of the gift money they receive in a savings account, mutual fund or stock. You can have them buy a fun stock such as Disney, which will even mail them a really cute stock certificate with Disney characters on it.

Child wants an expensive pair of designer jeans that are too much? Offer to pay for a certain portion of the jeans and then the child has to find a way to come up with the difference or they can't have the jeans. When the child has a vested interest in making a purchase, it helps them to appreciate the value of money better than when you buy everything for them.