Most people flounder when it comes to financial planning. Why? Because no one taught them how! That's why as a parent, you really need to take the bit between your teeth and show your kids how to treat money. Specifically, how to grow it and how to spend it.
This is a tall order. You're up against some stiff competition here. Most kids watch about 22 hours of television a week - and almost half of that time is spent watching commercials. Commercials to tell them they "must" have the newest toy or game. Basically they promote rampant consumerism. The concept of "deferred gratification" is all but dead. But we can't all be independently wealthy (Oh, how I wish) so the time to teach you kids to be pennywise and street savvy is now.
So where do you start? Well, a great place to begin is the child's own ability to earn money. Do they earn money babysitting? Or how about the neighbor that pays them ten bucks a week to mow their lawn all summer? Or the allowance you give them for doing chores? Anything they do that earns money starts them down this road.
Now they have two choices: they can spend it all at the arcade (okay, I'm dating myself here) or you can start a savings plan for them and watch with them as the fund grows into something they can really do things with - like go to college. It doesn't have to be a grand sum of cash to begin with - that's what this exercise is for: to show them the value of compound interest.
Here's and example: say your child earns $165 in one month by doing various odd jobs for you and your neighbors. By starting up a Roth IRA that invests the money in a nice, no-load mutual fund that gets an 11% return, and your child invests this money from the age of 8, they will have about $30,000 in this fund by the age of 17! If your child puts in more as he or she starts earning more, the greater the pot will be when they pull the money out.
Money should also be fun. Letting the child have some now to buy whatever they want will also help them learn about priorities. If they want a game and the newest super-cool sneakers like all of their friends, let them choose which one they want, and save the rest.
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