Teaching Kids to Set Personal Financial Goals

This may seem like a funny question, but have you talked with your children lately about their financial goals?

They don't have to be lofty, but your kids should have some goals that require them to take a longer view when it comes to money. It doesn't matter whether they're saving for an iPod, a car or a college education, the important thing is that they're thinking about the future.

The first step in helping your youngsters achieve their financial objectives is to explain what a goal is. A child's definition of a money goal is gathering enough to buy something they want. Ask your children to think about the things they want that cost money. If they brainstorm long enough, they'll probably come up with quite a list!

Try to separate short-term and long-term goals. Ask your kids to make a list of short-term goals  things that can be accomplished within about six months. They should think carefully about how much they can realistically save within that time period.

Have your kids add up how much they have coming in, including allowance and gifts. Suppose this averages out to about $10 per week, and they agree to save 40 percent of their income for future goals. You may need to help them with the math. Let's say their goal is to buy an iPod that costs about $100. If they make $10 per week, 40 percent of that is $4. Now they can calculate that it would take about six months to reach their goal.

Consider variations on the savings plan. How long would it take to save for that iPod if they set aside just 10 percent of their income each week? What if they saved half their allowance? What if they earned extra money by doing odd jobs? This will teach them important lessons about saving, and the value of earning extra money.

Another interesting exercise is to let your children interview you about your own short-term and long-term goals. This will open up a dialogue about how you think about the future. Begin by telling them what it was like when you were young. Did you have a long-term goal you were saving for, such as college or a car? Back then, my goal was saving for college.

Tell them how much your goal cost you at that time. When I went to college, tuition cost $1,500 per semester. Be sure to tell them how much you earned at that time, too. For me, the minimum wage had not yet hit $1 an hour! I earned 50 cents an hour for babysitting.

Talk to your kids about how you saved money when you were their age. Did you open a savings account at the bank? I did. In fact, my elementary school had a representative from our local bank that came in once a week to collect our savings for deposit.

Tell your kids if you were able to save enough to reach your goal at that time. By keeping my eye on my goal and saving regularly, I managed to save enough for college. In fact, I graduated from high school with $7,000 in my savings account. By the way, that's about what a new Porsche sports car cost at that time. It was very tempting to use my savings to buy a fancy car, but I went to college instead.

Talk to your children about how long it might take them to save enough money to buy the things they want. This is a good time to give advice about how and where to save money, too. The best place to start saving money is in a bank. And the best way to save is on a regular basis every week, two weeks or month.

To make sure your children start to set goals and save for what they want, help them create a simple budget. A budget is a written plan for how to earn, save, spend and share money. A basic budget shows "money in," from allowance, gifts or extra earnings, and "money out," for spending and expenses. Money that will be saved for your child's short- and long-term goals should be built into the expenses category.

Saving for something you really want and then buying it with your own money is a great feeling. Help your child set a goal, save for it, and celebrate their achievement. The sense of empowerment they feel will help them save for even bigger dreams down the road.