Teach Your Child the Value of a Dollar

Posted on February 5, 2009 @ 2:07 am
by Laura Nelson-Smith

Kids catch onto the importance of money in life pretty quickly as they watch us use it. The way to show your child the value of a dollar is by teaching them the different ways a dollar is used.

Begin When They’re Young

Begin explaining to your child how money works from a young age. It’s important for kids to know you get money by earning it. Items (or services) in life are given in return for money, and the value or worth of that item varies according to the seller. If you do not have enough money, you can not purchase the item.

Another good topic to cover is the importance of saving money. Let them know that a child with a two or three dollars could buy candy that will only last about 10 seconds, or even a cheap toy that will likely break in about 10 minutes or be forgotten about the next day. However, if that child saves the money, they can buy a better item that will probably have more value and last longer.

Have A Savings Plan

To develop a savings plan, help them decide on a percentage they can save each time they earn money. Ten percent is a good amount to work with since all they have to do is move the decimal point one place to the left. That will help them to see that for every dollar they earn, ten cents can be saved. You can also show the other examples too.

This savings isn’t for a better short-term item, but for a “rainy day” or even a car or college fund. The remaining $0.90 can be used for the candy or “better item” as mentioned above. This principle can teach the child self discipline for very long-term savings (i.e. a house or retirement when they’re an adult).

Sure, a six-year-old won’t understand the “rainy day” concept, and driving in ten years may be discouraging. But after saving 10% over the years, it’ll add up. This teaching is especially helpful when they get their first job and are already in the habit of saving that 10% for long-term use.

You might also set aside a certain percentage for charitable giving, so kids can also learn about this important aspect of managing money.

As Your Child Grows

When your child is older,take him or her to the bank with you and open savings account for them. Decide to take them to the bank monthly so they can deposit their savings into the account. Allow them to view the bank statement so they can see how money is grows with the assistance of interest.

Interest is a large part of spending and saving money. You will either pay more than what the item is worth or you can earn more money. Teenagers need to learn the concept that if you don’t pay the debt owed within 30 days, they will pay more for the item they purchased.

One of the best ways to teach about how good or bad interest can be is by role-playing. You can find an item your teenager wants to pay for with a credit card as an example. Make a chart showing that by only making the minimum payment, it will take longer and cost more because of interest.

On that same note, take the number of months it took to pay off the credit card and show how much interest he/she’d be making in a savings account while putting money away to save for that item. The amount of interest isn’t much, but the point to make is if you save money to purchase the item, you will only pay that sum without the additional cost of interest.

The goal of teaching how money works is to get children to hopefully see the importance of responsibility when making decisions about money.

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