Overview: It’s an issue every parent faces at some point: What to do about children and money. An allowance or a job? Cash or credit cards? How do we teach them to save?  They are tough questions, and there’s a lot at stake. One of the keys to long-term success in life is the ability to manage money, and it’s generally up to parents to get children started.

Unfortunately, there is no one-size-fits-all solution to teaching children about money. Every child is different, and each one reacts differently to various teaching methods. However, there are some general guidelines that can keep parents pointed in the right direction.

Don’t Avoid the Issue

One of the biggest mistakes parents can make in teaching their children about money is to not talk about money. At some point, most children will ask questions about how much money their parents make, or how much something costs. Avoid the temptation to sidestep those questions. Instead, use those as a starting point to talk about money, saving and budgeting. It is important to keep the lines of communication open and to show children that you are willing to talk with them about money and finances.

Making Allowances

One of the hottest topics when it comes to children and finances is allowances. Should parents give them? How much should children get? Most experts agree that children should be given an allowance. It helps children start learning financial skills at an early age. A general rule of thumb is one dollar for every year of a child’s age. Or, follow what other parents in the children’s peer group give their children. Just make sure the amount is enough to cover the things you expect your children to buy with their own money.

Successful Saving

One of the most important things parents need to teach children is not how to spend money, but how to save money. The easiest way to do this? Save money yourself. Lead by example. If parents tell children that saving is important, yet children see parents buying everything and anything they want, it creates a double standard. Children need to know that there are trade-offs for every decision.

Cash or Credit?

With so many prepaid credit and debit cards on the market today, many parents are tempted to load a card with money for their children. The idea is that they can then see what the children are spending and where they are spending it. However, these cards often come with high monthly or annual fees. They also make the concept of money somewhat abstract; children don’t necessarily realize how much something costs if they just hand over the plastic to pay for it.

With cash, on the other hand, children see how much actual money something costs. They can look at their wallets and see how much they have left to spend. There is no temptation to overspend if they have a set amount of cash in their hands.

The Bottom Line

There is no set formula for teaching children how to save and how to spend. However, by keeping the lines of communication open and leading by example, parents can set the stage for their children’s solid financial futures.

If you would like to talk to a BAM Network Advisor about customized wealth management strategies that can help you reach your financial goals, please call us at (866) 417-2211 or submit our inquiry form by clicking here: Find a BAM Advisor.