How to Teach Your Children the Value of Money

In the book “Rich Dad, Poor Dad”, Robert Kiyosaki was taught financial knowledge from a young age of about 9 years old by his Rich Dad.  This laid a strong foundation for him which benefited him later in life.

You do not have to simulate Robert Kiyosaki and his rich dad and waited until your children is 9 years old before you can teach you children financial related knowledge.  As long as your children start to understand what is money, you can start off by teaching them simple money handling and saving habits. 

Below are some brief points which I picked up at Yahoo Finance site, which suggest how you can teach your children the value of money.

Earlier Is Better
The benefits of teaching your children about money early on are both immediate and long term. In the short term, they may develop strong saving habits, learn how to make smart purchases, begin to understand the true meaning of “investment”. In the long term, you can help them avoid accumulating debt. And by teaching the value of saving for the future, you can help them plan for financial security.

Where Does Money Come From?
In a child’s world, money comes from Mom and Dad’s pockets. And they naturally assume that money is readily available whenever it’s needed.
Explain to your children that money is earned by working, and that you can only spend what you earn. To help them understand what it’s like to get paid on a schedule, begin paying an allowance and stick closely to the schedule. Then help them set goals for how they spend and save their allowance.

Children and Allowances
Experts differ on whether or not allowances should be tied to household chores. Although many people say children will learn more about personal responsibility if they are NOT paid for pitching in around the home, others feel it teaches them valuable lessons about working and earning. You might consider paying your children for chores outside of daily duties, such as helping to garden or wash the family car.

Make Saving Interesting
A simple savings lesson involves using a piggy bank and explaining to them how you also use a real bank to save your money. Encourage your children to save a portion of their allowance for a special goal. As they save money, you might reward them with a small additional amount, just like a bank pays interest. At the end of each month, calculate how much they have saved and then chip in a certain percentage as interest.

Banking and Investing
Once your children have been saving enough to accumulate $10 or $20, take them to the bank to open their first savings account. Most community banks will allow children to open first accounts with low minimum deposits.

When your children want something that they can’t quite afford, discuss the value of saving versus borrowing. If you do extend credit, use a written IOU, establish a repayment schedule, and charge interest. By doing this, you establish the framework for teaching your children that bonds and certificates of deposit are IOUs representing loans from investors to institutions.

In Robert Kiyosaki “Rich Dad, Poor Dad”, the rich make money work for them, while the poor work for money.  Compounding is a simple illustration of the idea of how to make money working for you.

As your children get older and perhaps take on part-time jobs to earn more money, their savings will likely amass at a quicker rate. Now is the time to review the lesson of compounding, or the ability of earnings to build upon themselves.  Explain how compounding can be more dramatic over time; the longer money is left alone, the greater the effect.  This can lead into a discussion about investing and how certain investments can have a greater ability to compound over time. 

Teaching your children about our complex financial system may seem daunting, but you can help put your child on the right track by encouraging smart habits now.

Is it worth your time and effort to help your children learn about money? As Benjamin Franklin once said, “An investment in knowledge always pays the best interest.” Answering your children’s questions honestly and in terms they’ll understand can help them begin life on sound financial footing.