Money is seen as such of a taboo subject that even parents are uncomfortable talking to their children about it. Society regard money as both profane and sacred, while social and cultural meanings and associations are attached to money.  Money can no longer be a taboo subject if you want to raise money smart kids.

I find very few parents do this. We throw them out into the reality life – school and college and expect them to fend for themselves. Don’t expect your kids to innately know how to pay bills or the dangers of credit card overuse.

With older children, explain how you manage your money: bills first, savings for retirement and other goals next and anything leftover is “fun” or discretionary money. If your discretionary income includes money for groceries and gas, be sure to separate that money from the “fun” money. They may be surprised by how little “fun” money there is, which reinforces why you are so careful with any additional purchases you make.

Have family discussion

With a little planning, you can talk to your kids about money in healthy, helpful ways.

Include the entire family in financial discussions. You may want to avoid the word “budget” since it makes people think about cutting back. Instead, sit down together to develop a family spending plan. By focusing on what expenses are important to your family, you will naturally find ways to cut back on items you care less about.

Keep your goals (cool reminder board) at home. A daily reminder of the vacation you’re saving for or the house you’d like to buy helps both kids and adults keep big-picture goals from getting lost in the day-to-day shuffle.

Save together, spend together. When you decide to save for something as a family — such as a new computer or a trip for holiday — show kids what saving money looks like. Get a big jar, and each week save some money to the jar, so the kids can see the savings grow. When you have enough saved, comparison shop together to help the children learn how to find the best value for their dollar.

Choose your words carefully. Parents often find themselves saying, “We can’t afford it.” But that can send a confusing message to kids. Some might worry that their family doesn’t have enough money for necessities. Instead, try saying, “That’s not how we choose to spend our money.” You might also say, “We can’t buy it now, but we can talk about how you can save for it, or you can put it on your birthday wish list.” That helps children learn to delay gratification and plan their spending — two important pieces of financial health.

Use allowance as a tool

Giving children an allowance as a way for them to become financially literate is good to teach them on how to manage the money. However, we shouldn’t tie the allowance to chores. That can backfire when kids expect to get paid for everything they do to contribute to the family.

Provide a piggy bank that’s divided into sections. Each time the child receives an allowance, he or she should put a predetermined portion into each section:

Spending — Children can spend freely from this section. But when it’s gone, it’s gone!

Saving — Children can set a spending goal and save up to meet that goal. Donating — By setting aside some money to donate, children learn the value of charity.

Investing — Help Children learn to save for the future. Once you have enough money saved up in this section, you can help your child open an investment account.

When your child becomes a teen, consider giving allowance on a prepaid debit card (flazz card, t-cash, e-money etc). This way, children can learn to track how much they have spent and how much they have left to save. When they go on to use their own debit and credit cards, they’ll already understand how to track and manage electronic money.

Learn from the mistakes

This is hard to do when our instinct is to protect our children, but we need to let them make their own money mistakes too. This is the best time to make them, when the stakes are low. It’d rather our children make a Rp 500,000 mistake now, then make a Rp 15,000,000 mistake when they’re in college or in work life because they never learned how to align their money decisions with their goals.

The truth is we learn from our mistakes and so do our children. When they find something, they want but have no money, they will now understand why we always ask ourselves, “Does this bring me closer or further away from my goals?” They will be smarter next time.

If you haven’t shown your children how to handle their money, you have left them vulnerable to a lifetime of financial insecurity. Teaching kids to save has nothing to do with hedge funds and sophisticated investment products. At the end of the day, it’s merely aimed at giving them the tools to become smart consumers, use debt wisely and put money away for their future.

I personally started teaching my daughter about personal finance when she was in junior high school – using her monthly allowance as the tool. We both learned a lot from this process.  When my daughter was in college, I also gave her a credit card besides giving her monthly allowance.  I added my 19-year-old daughter as an authorized user on one of my main credit card accounts when she studied abroad 4 years ago so that she learned important lessons about credit cards. She is more wise to use her credit card now after she earns her own money. 

We need to give kids a personal finance vocabulary, so they have the confidence to ask the right questions. It’s very empowering for young people to understand that they can make good choices about money.

Have you start teaching your children on how to manage their personal finance?