How to Raise Financially Smart Kids

As I was coming up with this next post, with my daughter crawling on the floor right next to me, I thought to myself I don't want my daughter to make the same mistakes I did. Money management is passed on from generation to generation. Sometimes good money management skills and sometimes bad. I think mostly bad.

I actually consider myself a "financial expert," although I have gotten myself in a financial jam of over six figures of debt more than once. In the past, I have spent more than I earned, racked up the before mentioned six figures of credit card debt, and had taken money out of my 401(k) (both as a loan and actual withdrawal). Even though my daughter is less than one year old, I still want her growing up with the knowledge that she should live below her means, save fifteen percent of her income, and meet her financial goals.

I feel basic money management should be a requirement in school, though many U.S. schools don't teach it at all. Right now the only was you can insure your children learn essential money skills is to teach them at home. Jean Chatzky, author of "Not Your Parents' Money Book: Making, Saving and Spending Your Own Money (Simon & Shuster) offers these five tips for raising financially money smart kids.

1. Give children money to manage. To build a sense of real world prices and values, give your kids some money and let them decide how to use it.
2. Offer incentives for saving. Decide how you want to reward your child for setting and achieving a savings goal, whether for an iPod or college.
3. Strongly encourage work. When it's earned money, a night of ice skating isn't just half of their allowance - it's two hours of work.
4. Talk about money. It doesn't have to mean sharing your salary, but it should include discussing the cost of things like dinner out, vacations and college, and which things are family priorities.
5.  Let them fail. Children, much like adults, need to learn: Only by carefully considering how to make the most of our money will we, and they, make the right decisions with it - at least most of the time.   

Remember debt management starts at home. Just like good eating habits, it's best to start teaching your children financial responsibility as soon as possible.

[This post is written and copyrighted by Financial Elite (http://financialelite.blogspot.com/ ).]

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