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Where do you think should your child learn money management skills from?

At school? At home? From books? From friends?

You should make sure that your child will learn how to think about, plan for, spend and save money effectively from you as a parent. But I think it should the responsibility of parents and teachers to encourage good money management skills in young teenagers in order to help them to avoid possible financial issues as adults.

Don't you also think that the sooner and better children learn to develop a positive attitude about money, the easier it will be for them to make sound financial decisions in the future? Let's say in terms of purchasing insurance, using credit wisely, investing, paying taxes, saving for retirement etc.?

In the material world in which we live, it might be difficult for a teenager - who gets hundreds of advertising messages daily for all sorts of things - to understand the fact that it's not how much you earn but how much you spend that determines your financial well being.

"A personal money management strategy for your child"

The strategy you could apply in order to teach your child how to manage money effectively could have the following approach:

Teaching your child about savings

• Teach by example - by looking at your own behaviour and then decide whether this reflects what you want to teach your child. Your child might learn more from observing your spending habits than any other lesson could teach him/her. An example how to show your attitude about money management first hand would be to encourage her savings by matching pound for pound what she puts into her account.

• On a short-term basis you could start with cash, followed by a savings account and ATM card. Later on, you could set up a checking account with debit card and last but not least build up to an investment account.

• Setting up a spending plan and finalising a budget is crucial. (How much should go into the savings account, how much can be spent at her own discretion, how much could also be donated for charitable contributions, etc.)
• Trying to save a small amount of money every day or putting a small amount of money aside every month which goes into a separate account. This could be done either way, as a working person or just as a saver. Your child would no longer miss the amount that is being put away and at the same time savings would accumulate which would generate some kind of pride too.

Teaching your child about expenses

• You should review the result after each month. Sometimes teenagers are not aware of where their money goes. You should look at whether her spending habits should be changed somehow for more important things. And if this is the case, that money has been spent unwisely then you could write down how changes in different areas should be made.

• Conducting family discussions of various financial choices, decisions and issues on a regular basis in a calm way would be an important part. Research among teenagers has shown that 41 % of parents have fights about money. (Tip: Make sure your child doesn't grow up with parents constantly worried about money and being secretive about it. It will make them feel that money is a too powerful and scary thing.) So try not to burden your child with too many money issues. Instead, make sure to teach her proper money skills so that she can use it as a tool in her life.
  

• If your child wishes to go to an expensive university that you as parents can't afford, then I would say that this would be the best time to discuss about it. You should not go into details, you should just explain that your budget isn't elastic and that you work hard for the money you earn. You could discuss the comparative cost of everyday grocery items as well as luxuries. You should not be ashamed to say you (or your family as a whole) can't afford something. Saying "we can't afford it" rather than "you can't have it!" will often result in sympathy and practical attempts to improve the situation, rather than sulking. But you should ask what could be done in order to make it still possible for your child to go to that university? Taking up summer jobs, applying for scholarships, saving gifts from relatives, etc. When kids are affected directly by a decision it's good to bring them into the financial discussion.

Spending reasonably

• Teaching the advantages and disadvantages of borrowing money would be useful. Highlighting the fact that high interest rates on debt can add up quickly and paying the money back might become more difficult. Thus, it's important to explain how interest works.
  

• Think about whether to give an allowance based on completed household chores or as a share of common family income which every family member is entitled to.
  

Earning your own money

• You could advise her to earn additionally some pocket money by doing chores in the corporate world. This would help her to appreciate how much time and effort it takes to earn enough for personal things. Furthermore, it would allow her to enlarge her skills portfolio.
  

• If she would be working you should not force her to save her entire paycheck. Together you could decide on a reasonable amount she would be free to spend. Allowing her to buy her own clothes, cosmetics, music, games etc. is a good way to teach her about spending. You should always make sure that your child spends money on healthy and legal activities.
  

The dangers of credit cards

• Helping her understand how credit cards work is important. Just by reading the ads from financial institutions she receives will not tell her the real story. An alternative would be Visa-Buxx, a prepaid Visa card, in which a parent or the teenager can load the card with value via electronic funds transfer and then the teenager can use the card until the limit is reached.

• Showing how credit card Payoff calculators work is another idea. It would make clear to your child at various interest rates how long it would take her to payoff a given balance if she only makes minimum payments.