It is never too early to start training a child about money-and maybe training yourself in the process. Parents can start teaching children as young as four or five to budget during a vacation or during an outing to a favorite store. As a child ages, parents can insist that part of their allowance goes to savings, a part toward charity, and the rest is for the child's discretionary spending. By the time that child reaches the teen years, one of the best tools for teaching money management is to put that teenager on a budget. First decide who will pay for what-school clothes, athletic wear, shoes, underclothes, winter coats, entertainment, cosmetics, eating out with friends, etc. Once you decide what you will pay for, research average prices. What do you think is reasonable to pay for jeans? For tee-shirts? For running shoes? For flip-flops? Based on your research, come up with a monthly figure you think is reasonable.
It takes training, time, and repetition to teach kids how to budget, handle credit, understand bank accounts, etc. Have your teenager sit down with you when you pay your monthly household bills. Show him or her the breakdown: mortgage or rent, utilities, garbage collection, cable and Internet costs, landline and cell phone costs, medical costs, etc. Show you teenager gas and grocery receipts to see how much those necessities cost you each month. The topper is to pull out your credit card bill. Whether you pay it all off every month or just a portion, have your teenager calculate the interest and late-payment penalties. Credit card costs usually opens their eyes.
If parents can achieve this while their teenager is living at home, it will be a much smoother transition when that young adult goes on to college or whatever he or she does after high school. The college student that already understands what expenses he or she is responsible for will most likely succeed in managing their college budget.
Then consider following the direction of Laura Crowley, a math teacher at the John Burroughs School in St. Louis, Missouri. Crowley has her students pick a college of their choice and determine the real costs of attending: tuition and fees, room and board, books, transportation expenses, recreation costs, and everything else from haircuts to football tickets. Crowley has the students use "recent growth rates to predict the increase in tuition for each year that they will be in college." The total usually shocks her students.
Next, Crowley has her students devise a plan to pay for everything, including jobs, scholarships, loans, savings, work-study, and how much mom and dad can kick in. Crowley's students are required to make a formal presentation of their findings to their parents as well as preparing a paper showing their calculations and a poster for class discussion. During lively class discussions, the students discuss monthly payments and total cost of any loans they would have to take, and how much money parents would have to save each month of their child's life to be able to fully pay his or her college costs once that child turns 18.