Why you have to have a family budget

It's never too early to teach children about money. Money management skills learned during childhood will play an important role in their wealth, happiness, and success throughout adulthood. What we learn as children becomes the foundation for everything we become. Here are 8 ways of teaching children about money.

1. Give your child an allowance. This is a simple first step. Children will learn that money comes in limited quantities and that they cannot have everything they want. They will learn to save for a big purchase and to prioritize. Have children pay for as many of their own things as possible, especially as they grow older.

2. Base their allowance on how well they perform their chores. Allowance must be tied to chores. Children who receive money just because they exist will learn to feel entitled. Money is not a right; it is a privilege earned through labor. All kids should learn that the amount of money you make is determined by how well you perform you job. Develop a grading system to rate how well your children do their chores and give them clear expectations of what they will earn for each grade. There should be no exceptions. Using this system will prepare them for the real world where if they don't perform, they won't progress.

3. Help your child understand the power of compounding interest. Have a conversation about compounding interest when your child is old enough to understand. Seven or 8 is usually a good time. Giving specific examples and showing graphs is a great way of introducing this concept. Children will perceive money earned through interest as magical and free. They will love it.

4. Have children pay for their things with cash. Have your child use cash to make his purchases. The act of taking money to the store, holding it, giving it to the cashier, and taking a purchase home is invaluable. Children learn to earn money, protect it, and enjoy what it can give you in a very literal sense.

5. Practice what you preach. The old saying goes, "children do as you do, not as you say." This is true, especially regarding money. Children with parents that rack up debt are likely to do the same. Be frugal, take time to explain financial decision to your children, and say "no" to yourself. Your example will stick with your children. They will be grateful when they have their own families.

6. Focus on experiences, not things. Try to teach your children that experiences, not things, make you happy. Research indicates that as long as people earn enough money to live a fairly decent life, they can be happy. Happiness comes from the inside. It comes from rich relationships, unforgettable experiences, and loving what you do. Toys, cars, planes, and boats just don't do it. Live this principle and your children will follow.

7. Focus on skills and education. The surest way to a better life is knowledge and education. Teach your children that the more you know, the more you will earn.