Teaching Your Kids to Manage Their Money

Sending your kids off to college can be a scary thing, especially as far as their finances are concerned.  You might have given them a weekly allowance, and they might have mowed lawns or even held a part-time job bagging groceries, but they probably don’t have a concrete personal finance management system worked out to protect them when they’re on their own—even as parents, sometimes we don’t have foolproof financial strategies, and that’s with decades of experience under our belts.

With this in mind, one of the most important lessons you can begin teaching your children before they leave for college or head out into the real world is money management.  There are probably some aspects of money management that they will have to learn from their own mistakes, but we as parents can at least give them the tools that will help them avoid as many of these kind of mistakes as possible.  Start by teaching them to:

Set Budgets

Budgeting is probably the most common area of weakness in any young person’s ability to manage her money.  It is an involved process that requires self-reflection, self-monitoring, and ultimately self-control.  Once a budget is set, our children can surprise us in their capacity to stick to it; the problem is that they don’t know how to set a budget.  Budgeting involves 5 basic steps:

  1. Establishing values and goals.  Before even looking at how much money they have, your children need to determine what is important to them and where they want to be in three years, five years, and ten years.  This will put the budget in context and affirm their reason for setting one in the first place.
  2. Figuring income.  This is not as simple as it sounds, mostly because children forget to use after-tax amounts, or rely on calculations based on gross instead of net income.
  3. Figure expenses.  To do this:
    1. Review checkbook, bank statements, receipts—anything that tracks where money is really being spent.
    2. Calculate fixed expenses, or those that stay the same every month, such as rent.
    3. Calculate variable expenses.
    4. Set at least 5% aside to save.
  4. After all expenses have been calculated, subtract the total number from income to determine spending money allowance.
  5. Stick to it.  Once the budget is devised, the most important thing to do is to follow it.  Remind your child that she is setting a budget to help her do the things she wants to do by first accounting for the things she needs to do.


Be Responsible

This is not something you can really teach to your children, but you can at least provide them a picture of what responsibility looks like, and encourage them to conform to that picture.  Ways to be responsible include:

  • Understanding credit and using it cautiously.  Most children when they leave their homes don’t fully understand the damage bad credit can do to their lives down the road.
  • Signing up for health and/or renters insurance.
  • Using overdraft protection.
  • Paying bills on time.
  • Limiting ATM use.

Think About the Future

Of all the lessons you can teach your child about her finances, this may be the most difficult for them to absorb.  During their young adult years, children don’t share the same long-term view of life as most parents have developed, and are prone to be unpredictable, rash, and sometimes foolish with their money.  Again, the most you can really do without becoming a tyrant is encourage your child to invest a portion of their money into mutual funds, make sure she has money for an emergency fund, set aside money in a savings account.  They might not hear you right away, but eventually the message will sink in, and you kids will be on the road to financial stability and strength.

Plus, going over these strategies with your kids will solidify them in your own mind, and might even remind you of some practices you could adopt.  The better you manage your own finances, the better you’ll be able to help your children with theirs.  Remember, the best way to teach is by example!


This guest post is contributed by Lauren Bailey, who regularly writes for best online colleges. She welcomes your comments at her email Id: blauren99 @gmail.com.



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