Whether we like to admit it or not, marketing and advertising is aggressively targeted towards kids of a certain age. In a consumer based economy, it’s not about thinking about your purchases and is totally geared towards blurring the lines between need and want. When kids are that young, traditionally, the don’t really understand money totally. The know that you need it to buy things but money has no real value to them. This is why I think it’s so essential to teach children the value of money at an early age.

For starters, you have to explain to them about how money works and that it is finite. Money isn’t a limitless thing that you simply “get.” You have to work for money and showing them how to use money is really important, even before they start getting it. Sit down and give them simple examples that they can understand. For example, you could tell them, “I have ten dollars and this item that I want costs six. Then I’ll only have four. Is the purchase really worth the price of me having less money?” Breaking it down to the most simple reasoning that we take for granted is really important. You need to give the a solid foundation of basic economics and personal financial planning. Boil it down to its most basic principals.

Generally I find there are usually two different camps when it comes to giving children an allowance. Some parents see this as a bad idea altogether where others feel that it’s good to give them a little something so they become familiar with it. The best approach lies somewhere in the middle. It’s, in fact, a really good idea to give children an allowance, but don’t give it to them for nothing. Have them work for what they earn. This teaches them the value of money very early on.  One way to get them familiar with the proper& smart use of credit cards, in order to learn to pay the full balance every money, is to give them a prepaid credit card.  This will teach them to use credit cards as cash, instead of credit cards, so in the future they can reap rewards points benefits, and not accrue interest fees.

Here’s another idea to teach how the economic system works:  take taxes out of their allowance. For example, if they’re earning twenty dollars, give them a few dollars less than that. Explain that this is a tax and that the money that’s being taxed will be used for basic bills. All of this will show them how how currency and taxes work and give them a much better grasp on handling wisely.  Then perhaps later in the year you can give them a tax refund, almost like a bonus even, especially if they’ve been good at spending their allowance wisely.

It’s all about teaching your children at the earliest age possible about the pitfalls of bad money management. If you give them a cell phone, don’t give them a phone that has limitless capabilities. Give them a prepaid cell phone that has a specific set of minutes. When the run out, they can’t use the phone again until the next month. Taking steps like these are really essential to preparing children for an economy that doesn’t forgive bad financial decisions.