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The most important financial skill children can learn?

March 22, 2013

| Money Rates Columnist

For those with such deep doubts about the plausibility of successful saving and investing, it is hard to imagine what will keep them from opting for short-term spending when the opportunity presents itself.

The gifts of waiting

If it's true that experiencing reliable delayed gratification boosts a child's chances of pursuing it, it may be wise to encourage your children toward financial experiences that show how waiting can benefit them. Here are a few ways to do this:

  • Help your child establish a savings goal and a plan for meeting it. Purchasing a $25 video game can seem like a tall order for children who receive a $5-per-week allowance. Show them how strategic saving can help them achieve ambitious goals over time.
  • Open a savings account for your child to demonstrate how interest works. This is a great follow-up to the step above. Interest rates are low today, but shopping for an account with a top rate can provide a more robust demonstration of interest for your child.
  • Invite your children to observe your budgeting process. Organizing your own finances is a great teachable money moment for kids. Show them how you record deposits and withdrawals in your checkbook to avoid overdrawing your account -- and be sure to mention the fees that will result if you don't.
  • Consider offering incentives on their allowances. Sure, they get $5 per week for keeping their room clean and taking out the trash. But would they add cleaning the dinner dishes to their chores for $7 at the end of this week? Or how about a $20 bonus for getting all A's on their next report card? Encouraging them to put in extra work for a delayed reward can spark an interest in pursuing distant perks.
  • Use your bank statements to show them the difference between saving and borrowing. The difference between the 13 percent APY you pay on your credit card (if you're like the average American) and the interest you earn on your savings is a good way to demonstrate the value of saving -- rather than borrowing -- to pay for unexpected expenses.

Much like delaying gratification itself, helping a child appreciate the trade-offs between immediate pleasures and long-lasting gains can be a long process. But if you succeed in teaching it to your children, wiser money instincts may be theirs to keep through adulthood.

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william Dad of two

16 April 2013 at 7:45 am

I have two kids and it has been hard work to find interesting ways to teach my children about money and how to best manage money. Sometimes the lessons start with the "how to think" rather than the why. I have opened a saving and checking account for my daughter, helped her start her own small business and Iam working on the same with my son. Honestly it's not as easily as it sounds. I read these articles and I get fired up about it - but my kids, that's a different story. Sometimes it's more like mood swings - it's not the sort of thing you teach as if you were teaching reading or math. I have found it to be very important to teach them the importance of how money works, the need to manage it wisely and more. Some of the adventures we have had have been very interesting at best.

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