How to Teach your Kids about Fiscal Responsibility

Step 1

Explain that money is hard earned and is not infinite - Let your kids understand why you have to work hard. Explain to them how you landed that job and why you are keeping that job. Tell them how much you earn and how much you need to earn each month. They will understand more of that by explaining to them expenses in maintaining the household. From your salary, let them appreciate how much goes to the electric bills, telephone bills, water bills, groceries and other necessary expenses. Let them understand that there are also unexpected expenses that you should be always ready with such for sickness and other emergencies. After paying all the bills, let them know how much is left for your everyday expenses until your next pay day.

Step 2

Explain Needs from Wants - By differentiating the two, your children will learn how to prioritise their expenses. Needs are things that cannot be postponed and wants can be postponed. Basic needs such as food, clothing and shelter are very important and should be prioritized over all other expenses. Wants are those expenses which are not necessary for everyday life but because of the pleasure it will give us, people could buy it whenever there is an extra money. Make them understand that wants can only be bought if and only if there is a surplus from the expenses for needs and savings. They will be able to value their video game and other toys they have in a different way now. They will also understand that they cannot have everything they want.

Step 3

Get them involved - After explaining the different household expenses, ask them to monitor the bills and how can they help to minimize expenses. Bring them along while paying water and electric bills so that they may see other people also paying household expenses. Bring them to the grocery store and teach them what to buy for the best value. After your trip in paying the bills or groceries, tell them a story of other people who are less fortunate, homeless and hungry. Explain to them that they are fortunate not to be in that situation. Let them understand that money is important and that it can sustain lives of other people and should not be wasted in unnecessary expenses.

Step 4

Teach them how to save for future expenses - Saving can be the source of funds for their “wants”. The more savings they have, the more purchasing power they will enjoy. Whatever money they saved is what they earned and let them decide how to spend it. But never forget to teach them that there are also important things that they should save for such as college, a vacation or their first car. Also, another way of saving is conserving energy. Teach them methods in conserving water and electricity and tell them that they will have a share on whatever savings you will have for these bills.

Step 5

Let them spend - After teaching them the difference between wants and needs, saving and conserving, give them an allowance to spend. This will test whether they learned something from you. If they learned, they will value their money and only spend for what they need and save or buy what they want yet still taking good care of it. You should not be afraid to tell kids about personal mistakes in spending and its consequences so that they will be able to learn from it themselves.