Empowerment and Experience!
My kids have been managing their own money since the age of 4 or 5. That is about the age that kids recognize money and some of its power. Having the freedom to make decisions with their money that they have earned has empowered them. They are confident and they make good choices with their money. They are all teens now.
We live in such a consumer driven society--it is difficult to overcome such clever marketing.
First and foremost--My husband and I believe in setting the example we hope they will become.
1. Just say NO! at the store.
We have always made them work for the money they get from us. I never subcomb to the pleadings at the store--I tell them to use thier own money.
2. Establish a saving/giving/spending plan. Make it a habbit.
We have a rule--save half, give 10%, spend the rest. When they were little, it was difficult for them to save or even learn to wait to buy something. Now saving and giving is just as important to them as spending. They each have checking accounts with debit cards as well as saving accounts or money market funds.
3. Do not bail them out of a tough situation.
It is difficult to see kids suffer disappointment, but it is an opportunity for a great lesson. My kids have lost their money and made many painful mistakes--including making impulsive purchases that feel good at the time, but is a waste of their resources; letting friends 'borrow' money--never to see it repaid.
Our theory is that we'd rather have them make mistakes now and give them a chance to learn and establish good habbits by giving them as much experience as possible.
We'd rather see our 8 year old lose his 40 dollars because of carelessness than to see our 28 year old lose 4000 dollars because of carelessness he could have learned to avoid when he was 8. Wise people tend to learn from their mistakes.
4. Teach them according to their personality.
Each kid manages money differently, but we have taught them to work with the personality they have and not put themselves in difficult situations. I have a kid that is an impulsive spender, who does not like to balance her checkbook. So she puts away money (her paycheck) in a saving account (short term savings) and investments (long term savings) first and then gives herself a set amount of cash to spend every week. Her rule is, she can spend whatever she puts in her wallet for the week on whatever she wants impusively but when the money is gone, she has to wait the next week for the next installment of money. She does not use checks or her debit card. She uses her short term savings to pay cash for more expensive items and does not touch her investments--which she will use for college. This keeps her from having to physically balance any checkbook--which she hates to do. My other kids are savers, but are very selective about what they purchase. They treat themselves to things, sometimes sharing the cost (like a computer game or book).
Our son has come a long way--losing the most money as a kid, by not keeping in a safe place or by being careless. He is so much better at managing his money and and keeping things safe. He has trained himself to put his valuable belongings in a 'home' he established. He is really a messy kid and absent minded at times. But his habbits has helped him overcome his short- comings.
5. Real world education. We are focusing on identity theft, carefully surveying offers to make wise decisions. They are consumers and use the internet frequently. My son has even been cheated on ebay--for $600. Working through the horrible 6 month process of dealing with endless voice mail, poorly informed customer service agents, red tape and law enforcement was a great lesson for him. He was very upset, thinking that he lost his money. Fortunately he was able to get it back. He will be much more careful before making purchases and he will not take shortcuts or let someone sweet talk him into a deal that sounds too good to be true!
My son owned stocks at one time through an account. We did research for several months to learn about the stock market and how it all works. He learned to follow stock prices in the news paper--another great lesson.
6. Involve them in everyday money making decisions.
Sometimes the kids do the meal planning and we give them a certain amount to use to purchase groceries. It is a good skill to read labels, compare prices and work with a set amount to purchase neccessities.
They get clothing allowances throughout the year and purchase their own clothes. If they want more expensive clothes--it is their responsibility to work and supplement the clothing allowances we give them.
My oldest daughter--who is 18--drives, but pays us money each month for the priviledge to drive and to help supplment insurance and car maintenance. She buys her own gas and takes care of oil changes. We really do not need her money, but we want to get her in the habbit of always setting money aside for the 'not so fun' things we need.
7. Make them bear the burden of waste and mistakes.
When my kids waste milk or forget to turn off a light or have an overdue libray book--they have to use their own money to pay to replace the item or service or pay the fine. My son lost the paperwork for a rebate, so he had to pay us the money we would have gotten for the rebate. If they forget their sac lunch--they pay to eat in the school cafeteria.
8. Teach them to value their work.
My son does many odd jobs and he has had to learn to negociate for fair prices for the jobs he performs. That is difficult for a kid who is just excited about getting a job.
We feel that we have to give our children as much experience and education as possible.
9. Teach them how to lend money to others--or to say no when people ask.
We tell our kids that if they can afford to live without the money forever, then it is okay to 'lend' money. It is inevitable that people will ask to borrow money. Getting the money back is another thing. We try to teach them to help trustworthy people and to try to stay away from lending altogether.
This money education is an ongoing process because they still make some mistakes. We even make a few mistakes from time to time. However, they have really come a long way and they are doing very well.
We have one shot for a short amount of time to arm them with what they will need to reach their potential.
Proud mother of 3 wonderful savy kids.