Teaching your kids about money and debt

Feb 28, 2012 at 3:00 p.m. ET

Though your children are young now, they'll eventually have to make many important money decisions -- from basic budgeting to establishing credit to avoiding debt.

Money management and credit tips for kids

Teaching your kids about money now can build the foundation for a successful financial life in the future. Talking to your children about money and debt as youngsters will hopefully help ensure they are more responsible about money matters in the future.

"It's really never too early to teach your kids about money and debt, as long as they have the interest and aptitude to understand it," says Erik Larson, president and founder of leading consumer resource NextAdvisor.com. "Kids are naturally curious about what they see their parents doing, and no doubt they've seen you pay with a credit card often. If you haven't explained the basics by the time they hit their teen years, it's a good idea to have that conversation then. Some of their friends may have credit cards already, or at least they'll be discussing them."

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"Between the ages of two and four is the best time to start teaching kids about money," says Loral Langemeier, author of four bestselling books with her fifth highly-anticipated book, Yes! Energy: The Equation To Do Less Make More, available in bookstores in February 2012. "Do not postpone this conversation. Equally important is to watch your own conversation around your children, as they will model their behavior after you. What you expose them to is how they will be programmed to feel about money."

Let them save up

Langemeier believes children should never be paid an allowance. "Paying an allowance takes away from teaching an entrepreneurial mindset," she explains. Langemeier says you should encourage your children to follow a simple plan:


Have them pick 10-15 tasks they believe they can do. This teaches them to recognize their own skill set.


From the task they have identified, select the top five tasks. They should be tasks that the child is good at doing and enjoys doing.


Negotiate a value for each of the five tasks -- this will demonstrate the value of money/labor.


Now they must complete the tasks as agreed.


Hold them accountable: the tasks must be completed as agreed to or do not pay them.

"By age 8, children should help purchase their own toys, games and other items," says Langemeier. "Suggest that if they want something they need to save up 50 percent of the cost with their own money."

Helping your kids establish credit

"It make sense to wait until your child is in their teens before you let them use credit cards, because there is no need to establish a credit history prior to that," says Larson. "Additionally, older children are more inclined to be responsible about money. Many parents turn this into a learning experience, sitting down with their kids on a monthly basis to review the credit card bill, discuss what's been spent and talk about how it's going to be paid."

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