Whether or not you’ve followed Kids’ age-based guide to focus on money management for children, your student needs a good understanding of money basics as they head off to college.
Many of the financial lessons they must learn apply to their college finances and beyond – the ability to budget, spend wisely, and save for the future are all important financial skills. Here’s what your teen needs to know. Budgeting Skills for Students Purchase Responsibilities Before your teen heads to college, discuss what expenses you’re prepared to pay versus what your student will need to pay. For example, if they need a car at college, you may be willing to pay for insurance and maintenance, while your teen pays for gas and campus parking. Needs Versus Wants Your teen must understand that some expenses are essential or ‘needs’, while others are just ‘wants’ e.g., buying groceries is a need but eating out is a want. Teach your kids to recognize the difference, prioritize the ‘needs’, but also to allow for some ‘wants’ too. Creating a Budget College is your teen’s first taste of managing a budget independently. Balancing income and expenditure is the key to long-term financial success, encouraging sensible spending today and prudent saving for tomorrow. User-friendly financial apps like Mint allow your teen to set spending limits by week, month, and even spending category, see where their money’s going in real time, and – if necessary – reduce spending in one area to balance higher spending in another. Other apps like Greenlight link to parents’ bank accounts, allowing easy transfer of funds, co-observation of spending, and target updates toward saving goals. Bargain Hunting Wise spending and the art of bargain hunting are useful financial skills to have at college and beyond. Your teen can scout out student discounts at local restaurants, vendors, etc., and source the best value textbooks by avoiding the campus bookstore (often the most expensive), and instead buying second-hand, renting, or using a financial app to comparison shop online. Student Income Income at College Your student’s college income may come from a variety of sources, including FAFSA and college aid, scholarships, money from home, and part-time and summer employment. While wages and money from home may arrive weekly or monthly, other funds like scholarships and student aid are paid only once per semester or school year. Your teen needs to learn fast how to make that money last! Future Income If you didn’t discuss it while deciding on the right college, make sure your teen has realistic expectations regarding their career choice, potential earnings, and future lifestyle. Teen Banking Checking Accounts for Students If they don’t already have one, help your teen establish a checking account with debit card before they head off to college. Choosing a bank that’s on-campus or nearby will provide convenient banking, with lower or zero ATM fees. Ideally, look for a checking account with no minimum balance requirement, unlimited transactions, overdraft protection (in case of errors), and online access, which can make overseeing your teen’s money management easier if it becomes necessary to step in. Savings Accounts Encourage your teen to also establish a savings account, to help plan ahead for longer term or larger financial goals like buying a car or studying overseas. Custodial Accounts Don’t forget that your teen will assume full control of any custodial accounts in their name at the age of majority (18 or 21 years of age, by state).
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Back-to-school signals a renewed focus on education. That includes teaching kids about money. The start of the new school year is the perfect time to review your kids’ proficiency with money.
Use our back-to-school kids’ financial literacy checklist to prepare for the year ahead, with new and exciting financial learning opportunities that reinforce current skills and introduce new ones, relative to your child’s age and development. Allowances Allowances are an essential part of your child’s financial education. They’re a fundamental building block in teaching your kids about saving, spending, budgeting, and even borrowing.
Purchase Responsibilities Just as your kid’s allowance should increase as they get older, so too should their purchase responsibilities. Purchase responsibilities help kids learn about real-life costs, wants versus needs, and the importance of budgeting.
Chores As your kids get older, age-appropriate chores support the household and teach kids valuable life skills, self-reliance, and time management planning.
Jobs And Work Once your older kids, preteens, and teens are settled back into the school routine, encourage them to take on odd jobs for extra allowance or paid employment. Such opportunities support financial learning in multiple ways, such as saving towards longer term goals and understanding taxes.
Giving If philanthropy is a core family value, use the new school year to teach your kids about charitable giving.
Saving And Spending The start of a new school year is a good time to help your kids set some key short- and longer term saving goals such as saving for birthday and holiday gifts, or looking ahead to spring break travel.
Banking Banking is an important real-world element of your kid’s financial education. It helps kids learn about financial terminology, savings and interest, financial technology, and much more.
I've spent a lot of time thinking about financial literacy and putting together an effective program I believe teaches children everything they need to know about personal finance.
I am happy to share what I believe makes a robust curriculum while providing financial education for kids. Some of the later topics listed below may be too complex for younger learners as our program is geared specifically for the 10 to 14 age range, although we have had many homeschoolers tell us they have found it to be effective with slightly younger and older children than the 10 to 14 recommended age group. Mortgages Explain how mortgages work and how most people are able to purchase a home by saving for a deposit. If children learn the basics of property finance now it will improve their chances of being able to own their own property in the future. Buying property Buying a property is the biggest purchase many people make in their lives. Introduce children to the process early. If they learn the basics now they can approach the opportunity with more confidence as adults. Rental Property Discuss the basics of earning money via owning a rental property. Certificate of Deposit Investing is a way of creating wealth without having to be paid to do something. Introduce term deposits and why they are better investments than regular savings accounts. Property Investment Rental property ownership is a common form of investment. Explain why rental property is a medium return, medium risk investment. Stocks Introduce children to the basics of earning money via owning stocks and explain what how the stock market works. Collectibles Collectibles are investments in rare items that (hopefully) will increase in value over time. These items include art, coins, stamps, antiques and cars. Although they can be fun to collect, it is a high risk/high return investment and children should get a good understanding of the risks involved. Business Basics Businesses produce most of the products and many of the services we enjoy in the world today. Introduce different types of businesses and the jobs your child might expect to do if they work in one. Marketing Marketing is telling customers about your product or service. Children should learn some simple tips on the best way to do this, then for fun they can make something to sell and market it. Promotion, Selling, Price Promotion is how you get your marketing message to your customers. Teach them about advertising, loyalty programs, how to set a price and make a sale. Profit and Loss A business’s profit is the reward for the effort given and the risk taken by it’s employees and owners. Explain how to prepare a simple profit and loss statement and what profit a business might expect as an acceptable return on investment. Warranties and Cash Teach children what to do if the product they have purchased doesn’t work like it should or stops working altogether. Include a discussion on the ways they can keep their cash safe, both at home and overseas if they are lucky enough to travel. Insurance Insurance helps protect us financially if things go wrong. Explain how insurance works, in particular House and Contents, Car, and Health insurance. Online Security and Lotto It’s important to teach children about cyber security, particularly around spending money on Ecommerce sites and not sharing account/ password/ personal details with strangers. Also discuss the chances to getting rich through playing lotto or gambling. Net Wealth Finally explain why children should save to invest and why they should invest to grow their net wealth. Also explain the importance of protecting their net wealth by diversifying their investments. Are you teaching your children about investing? As they become aware of money and other financial concepts, it is smart to familiarize them with investing and arm them with know-how and tools they can take with them into adult life.
Children mature at different rates, of course, so it may be a while before they’re ready to tackle concepts such as portfolio creation and asset allocation. However, the basics of investing and financial education for kids can be taught when they are quite young. Long before your kids start checking company profiles on the internet, you can explain the relationship between risk and reward. To illustrate these concepts, let’s sketch a brief picture of two common investments: stocks and bonds. KEY TAKEAWAYS
Discuss Stocks and Bonds Introduce the idea that—in contrast to the savings account your child may already have—stocks are a variable-risk, variable-return investment. On the whole, stocks are classified as high risk, but along with that comes the potential for high returns. Explain that a stock’s value can go up and down, depending on the growth and profitability of the company. Also make it clear that risk in stocks can’t always be predicted—for instance, when corporate records are tampered with or CEOs lie. However, these events are outliers. Overall, the stock market has risen consistently in the last hundred years, offering healthy returns. A bond is a low-risk, low-return investment, one type of debt security. Typically, bonds pay a small amount over the prime interest rate and are backed by stable institutions (usually banks or governments). You can buy lower-rated bonds that offer better returns, but they can default, and you can’t necessarily count on getting the income when expected. Given the complexity of these instruments, you may wish to start your child with stocks and explain that bonds become more important later in life. Keep Your Child’s Attention If you own stocks, start by showing your child what you own. Brand-name companies might get their attention—plane manufacturers such as Boeing, sports gear specialists such as Nike, technology companies such as Apple. Look at each company’s investor relations page together to learn more about what the company makes, how much it earned that year, and how many people work there. Then ask your child what company they would like to buy. Kids often have favorites even if they are not aware of them. Facebook and Disney, for example, are likely to be popular with most children. Once you have introduced your kids to basic concepts, sit down and let them select a company. If you have the money, buy a few shares in the stock and then check the investment together at least once a week to show how it can rise or fall. You can also make a model online portfolio and track stocks for fun, without the expense of purchasing shares. If you pick stocks with your children when they are young, they’ll experience how markets have up-and-down cycles; this will prepare them for the reality of market fluctuations and help them make informed decisions when they grow up. Let Your Child Invest When your child is older, you can provide a more in-depth explanation of stocks and other investments. Eventually, you want to let a child buy their own stocks. They may have enough cash diligently saved up in a savings account by the time they are interested in investing. Don’t put it all into bonds or the stock market; instead, invest a third in each and keep a third in savings. This will allow your child to compare the returns of different types of investments. You have two options if your child doesn’t have money to participate in the learning process. You can use your own cash to open a small brokerage account where your child to make investments, or you can build a model portfolio of stocks that your child wants to buy someday. In the latter case, with no funds actually at stake, you will need to find innovative ways to maintain their interest. There are several ways to open a brokerage account for a minor. Check with a tax expert for the best option before you start. Another thing to decide is whether you want to introduce your child to investing through one of the many online brokers—here are some that we think are especially good for beginners. Depending on the rules of the firm, an adult may be able to open a custodial brokerage account in the name of a minor and give that minor the right to trade in it online. The adult would remain the official custodian. The Bottom Line It’s important to allow your child to make real decisions and take real risks. Money may be lost—one hopes, not on GameStop—but the purpose of the exercise is to familiarize them with investing, and part of that is learning that investments have advantages and disadvantages. Whatever the outcome, the experience of following their investments and gaining and losing money—whether actual or theoretical—will be invaluable. Spending in the present while saving for the future are two key money concepts every child and adult must learn to balance. Spending and saving are mutual partners in that savings frequently support future spending objectives (i.e., college or retirement).
Saving and Spending Milestones – Ages 3-4 Saving Milestones It’s best to keep conversations about money simple with young children. Talk about what money is, how it’s used, that you earn money to buy things, and the difference between needs and wants. Try using a transparent coin jar to collect loose change. This helps familiarize your kids with coins and counting, and demonstrates how money accrues. Provide plenty of encouragement and make teaching kids about money a super fun part of the day! Spending Milestones The grocery store and the bank are great places for your kids to observe money at work in real life. Imaginative play, such as playing store, is another way to reinforce money concepts. Once your child’s savings reach a modest level, allow them to make occasional withdrawals for inexpensive purchases under your supervision. Saving and Spending Milestones – Ages 5-7 Saving Milestones Your kids are likely old enough to introduce a small allowance, paid weekly in cash. Some parents tie allowance to household chores. Transparent money jars are still effective so your child can watch their savings grow. It’s all about learning that saving now enables something more valuable later, whether it’s a desired toy or a holiday gift for a loved one. Children this age may struggle to verbalize realistic savings goals. Keep them engaged by helping them define one or two fun, small savings goals. Write the goals down, and use visual prompts like pictures, graphs and stickers to encourage progress. Spending Milestones Continue to supervise purchases, setting limits on how much your kids can spend and on what. If necessary, make them leave some allowance at home. Help your kids learn wise spending habits by explaining coupons and sales, how you make purchase decisions, and by being a good financial role model yourself. Saving and Spending Milestones – Ages 8-10 Saving Milestones An expanded concept of the future allows kids between 8-10 to initiate a goal-oriented savings plan. A birthday or the start of the year are great times to develop a plan together. Use visual prompts so that they can see how far away the goal is and can track progress. Goal-oriented saving is ideal for teaching your child to save for longer term wants. Learning to set and achieve attainable goals fosters a sense of accomplishment and inspires greater goal-setting. What your kids are saving for doesn’t matter as much as the process of learning how to save for the future. Help your child establish their first bank account. Studies suggest that kids with savings accounts are six times more likely to attend college. Spending Milestones Your kids now have a greater appreciation for money and how it works, yet they might still make imprudent spending decisions. The good news is that mistakes offer learning opportunities, including a number of important financial lessons: • The value of money versus what they get for it. • That they can’t buy everything. • That money runs out if mis-spent. • That there may be no more money available (unless you tie chores to allowance and are willing to let them do additional chores). If you haven’t already done so, consider introducing purchase responsibilities, items your child should now be accountable for e.g., gifts, vacation souvenirs, and arts and crafts supplies. Also, if it aligns with your family values, introduce charitable giving as a form of budgeting and allocating financial resources. Saving and Spending Milestones – Ages 11-13 Saving Milestones As peer pressure builds, it’s a prime time to reinforce family values, including good savings habits. Create a budget together so your tween can see how income, spending, and saving interconnect. It’s also time to introduce longer term savings goals like college and car costs. Outline what your tween will be expected to contribute now, so that they can start saving. Consider a separate savings account and/or require a set amount be put aside monthly towards such goals. Spending Milestones Your tween’s purchase responsibilities should now include both wants and needs. Go shopping together to help your tween make wise spending decisions based on value and need. If your tween wants a more expensive designer item, make them pay the differential, to highlight the premium attached to more costly items. Online banking and budgeting apps allow for greater spending autonomy for your tween and easier oversight for you. Saving and Spending Milestones – Ages 14-16 Saving Milestones Your teen may be ultra-focused on saving now, because having their own money equates to independence, which every teen craves! Research suggests that teen saving is closely related to adult saving. Young people are more likely to fall victim to scams and identity theft than older adults [3], so teach banking basics such as account security and how to carefully monitor account balances and expenses. Spending Milestones Continue layering on purchase responsibilities. Your teen should now be self-funding almost all wants e.g., cosmetics, accessories, and outings, plus a range of basic needs that you determine together such as sporting equipment, art supplies, and technology upgrades. Remain involved in spending decisions to provide guidance. Adjust your teen’s allowance to account for increased spending needs and outside income, carefully evaluating disposable income. Allowance should now be paid monthly, encouraging increased budgeting skills. If your teen runs out of money, consider extending a loan to teach them about debt. Saving and Spending Milestones – Ages 17-18 Saving Milestones Be mindful of the Wealth Effect and the expectations your child’s current lifestyle instills. Talk with your teen about careers, earnings, and other choices that will impact their future lifestyle. If appropriate, encourage your teen to apply for scholarships, part-time employment, summer jobs and internships, to gain experience and help boost college savings. Spending Milestones Spending should now include more real-life expenses e.g., paying for gas and car insurance. The goal is for your teen to possess a sound knowledge of what things cost, the value of items, and how to comparison shop. Skills of money management for children lay the foundation for lifelong success, and the path to financial wisdom begins in childhood. In recognition of Financial Literacy month in April, there is a website dedicated to helping you raise happy, financially wise children through developmentally appropriate activities and responsibilities.
Below are some of the top tips in brief to help you guide your kids towards financially rewarding lives. Teach Financial Responsibility Through Independence One of the best methods of learning is through hands-on experience. Engage your kids as soon as possible in their own money management (with appropriate oversight), and introduce new age-appropriate responsibilities in a continuum fashion as your child grows. Financial elements to focus on include assuming purchasing decisions, managing an allowance through budgeting, saving for short- and longer-term goals, learning about banking, valuing the importance of work, and more. Instill a Healthy Attitude Towards Savings Promoting a strong savings ethic is one of the most valuable lessons you can teach your child. Learning to spend less than you earn is the foundation of financial success, and learning to set and achieve goals is a fundamental principle that applies to broader life learning too. There are plenty of ways to support and teach your kids the value of saving, beginning with accumulating spare change in early childhood, through matching savings contributions from high school earnings and saving for college for teens. Allow Learning from Mistakes Learning about money is to some degree akin to learning how to ride a bike: You need to fall off a few times in order to learn how to get back up again. Allowing your kids’ direct involvement in their own money management means that mistakes will happen along the way. Be sure to offer constructive advice and support in these situations. Another recommendation and one that might seem counter intuitive is to allow your kids to get into debt (in a controlled manner, of course). This offers a valuable opportunity for them to learn about loans and interest, how to get out of debt, or better yet, how to avoid it altogether. Create Realistic Expectations One of the best things you can do as a parent is to help your kids understand what real life costs, especially how much money is needed to maintain their current lifestyle. It’s important to be mindful of the expectations your kids are developing, as the lives they live now create the foundation for what your children will hope to achieve as adults. Regardless of if you’re affluent or you simply enjoy creating experiences and opportunities for your kids, it’s important to be mindful of a potential “Wealth Effect” and expectations your kids could be developing. Be a Strong Steward of Your Own Finances As with all other aspects of parenting, you continuously have to envision yourself in front of a mirror, asking yourself if you’re setting good financial examples for your kids. No matter how old your child is, you are the greatest influence in how they perceive money and approach finances. Engage in frequent and open discussions with your kids. Talk honestly about what you’ve financially achieved, the lessons you’ve learned, money experiences that have resonated with you, and wise tips toward financial success. Always try to discuss money in a positive manner and lead through positive examples. Be cognizant of how you manage your money, how you pay for things, your money stresses or exuberances, and even subtle comments that you make about yourself, others, your job, etc. Understand Your Own Relationship with Money Part of being a strong financial role model includes understanding money personas and how each of us embodies a unique relationship with money. Take a moment to understand your own relationship with money and the persona you portray. Your child may learn to replicate your money persona or may become the opposite of you. The examples you lead today set the stage for who your child will become tomorrow. When it comes to financial education, the reality is that there’s a lot to learnby age eighteen. Financial responsibility can’t be learned in a semester or in a classroom. It’s learned over a lifetime. It begins at home. It begins with you. By the time your children become teenagers, they should have a pretty good understanding of money… perhaps spending rather than saving! It’s important that teenagers recognize the value of money and understand that it is not an unlimited resource.
One of the first questions young children ask parents is a variation of, “does money grow on trees?” That is one of the earliest conversations about money you’ll likely have with your kids. My school-aged kids once asked me, “Mom, does that card just give you money?” That question led to further discussions about working, earning, and saving money. Now with my own two boys entering their teenage years, it’s time to further educate them. Where do parents begin? Here are some ways to teach your teenagers about saving money: Monthly Budget If you haven’t already started your teenager on an allowance, now is the time to consider. For younger teens unable to get a part-time job yet, consider giving them opportunities to earn money for spending by doing chores around the house, and babysitting. Money that is earned is most always more valued than money that is given. Instead of handing bills when they ask for cash to go out for lunch or movies with friends, give them a specific amount each month. This will teach them to budget and control their spending. Part-time Job Nothing teaches money skills faster than earning a pay cheque! Once your teen is ready to enter the job force, discuss what will happen after receiving that cheque; how much will go into his/her pocket, and how much will go into the bank account. Setting Goals Have your teen write down what their financial responsibilities are, such as paying for cell phones or car insurance; and what their financial “wants” are, such as money for purchasing clothes, or hanging with friends. You can help them create a budget that determines how much they need to pay for bills, and how much they have left over to spend on fun things. When you teach kids how to prioritize and plan using a budget, and when they understand that they need to pay the important things (bills) first, they’re more likely to save, knowing that there is money set aside in their budget for fun stuff, too. Match Kids’ Savings Deposits Most teens find it more enticing to save money when parents can match a percentage of their own savings. You can make a “rule” that a certain percentage of their earned income or cash gifts goes into a savings account – a good rule of thumb is 10%. Let them know that their deposits are secure thanks to federal deposit insurance. The Canada Deposit Insurance Corporation (CDIC) is a federal Crown corporation that protects deposits at banks and other financial institutions that are CDIC members, up to CDN $100,000 (per deposit category), in case of a bank failure. Eligible deposits include:
But not everything is covered. Teenagers may not be banking beyond basic accounts, but it is important to note (for us parents, too!) that accounts and deposits not protected by CDIC include:
Explaining CDIC and deposit insurance to teens can help them understand where their money is saved. Here is a helpful animated video you can watch together to help them better understand. Create Other Rewards for Saving Teens also might be encouraged to save more if parents implement other types of reward programs. You can talk to them about ideas for savings – this interactive video is a great way to open the discussion around saving for the future. Upon graduating high school, you receive $50,000 and you choose what to do with it – what do you do? Ideas for savings rewards for your teen can include helping buy for a vehicle, college/university tuition if they save up a certain amount first. By teaching teens about money management, savings and budgeting their spending, you give them the power they need to spend and save in ways that are most important to their individual goals. Talk About Your Finances
The first and most obvious thing during the process of teaching kids about money is to start involving your teens in conversations about your family finances. Let them see you pay bills and be there for discussions about monthly budgets, savings, and other financial information. Some families think it's helpful to show their children how much money you make every paycheck. This all will help them to better understand how hard you work and where your money goes on things that aren’t fun. However, breaking down a pie chart into percentages {for example, we spend 25% of our take-home pay on housing} can be just as helpful without laying all your cards on the table for your kids. Convert Money to Time Take them out with you when you go shopping and convert the price of items into the amount of time you have to work for that item. If they have a job do the same comparison. It can also help to know what your state’s minimum wage is and include that as well. Let them see that the $100 pair of shoes they want will take them {or you} so many hours of work to earn. If you make $10 an hour, that pair of shoes cost more than a day’s wage. This comparison will help them understand how much their daily Starbucks runs cost in terms of time and they might think twice. Help Them Set a Savings Goal It can also be helpful to help your teen have a savings goal. For many teens, that goal will be a car. But maybe they want to go backpacking in Europe or something else. Giving them a goal to work towards might encourage them to get a weekend job or find other creative ways to earn money. When they start to handle money for themselves they will be faced with things like buying the latest iPhone…or not being able to go on their Europe trip. Having a goal will help them learn self-control when it comes to spending as well as the important skill of saving. Help Them Get a High-Interest Savings Account Help your teen get a high-interest savings account and teach them the value of compound interest. Show them how $100 saved now can turn into thousands of dollars if they leave it alone until they retire. Retirement will seem like forever away, which it is, but you can use a compound interest calculator to show them the difference between starting now or starting when they will be your current age. They have age on their side, so this is an important lesson for many teens! Start as Early as Possible Most importantly, you should get started on all of these things as early as possible. The sooner your teen begins to learn the value of money the more successful they will be with money in the future. The truth is, it is never too early to start teaching your children about money…and it isn’t too late either. For many teens, they are shocked to realize how expensive things are in the real world. After years of not being able to have a job, and then thrust into a world where they need to manage money, this can be a difficult transition.
It’s important to teach your teenager about money to help them make more responsible decisions with their finances when they leave the nest. Here is how to teach financial education to kids. How to Teach Teenagers About Money Let your teen earn their money Cut off their allowance and let your kids earn every cent that they make. This could be through household chores if they can’t have a job. Through babysitting, or let them get a part-time job after school. Letting your kids earn their own money will make them value it a lot more than if it is given to them. Set up a bank account Setting up your teenager with a bank account will not only help make it easier for you to teach them about things like using a bank card and making deposits, but you can also use it as a way to teach them about saving money! Help them get started with their own savings account, and about not losing track of money. Show them how to download the various bank apps and how to use them. Teach them how to manage their money Teenagers need guidance about how and where to spend their money, especially in a world of online shopping! Teach them about budgeting basics and what it means to manage their money well. If you trust them to have a credit card, you could even teach them about the importance of building credit while they are young. Give them financial responsibility It’s important that your teen learn that responsibility that comes with finances. This can be from paying for their own insurance, cell phone bill, or car repairs. It could even be teaching them about how to earn pocket money. These are important life lessons your teen needs to know and understand to be successful! If your teen doesn’t have a car, consider teaching them a money lesson by letting THEM by their first car. Let them save up the money for it, and eventually buy it themselves! Plant good money habits Good money habits are something that is either taught or learned. Rarely will you find someone who is well off with their money because they got lucky. Teaching your kids about good money habits is essential to planting good money habits for their future. If they are used to setting budgets, saving money, and understanding how cash flow works, they will make those same decisions as an adult. By implementing these good money habits, your kids will be less likely to end up in debt, broke, or worse As one of five kids, allowance meant everything to me as a child. My mom bought everything we needed, so it was only through allowance that I was able to purchase the things I really wanted.
While I earned my allowance by doing chores, I was given little instruction on how to responsibly spend my money. The vast majority of what I saved in my piggy bank eventually found its way to the neighborhood store, where I blew it on clothes and CDs. Ultimately, the experience taught me little about financial responsibility. Teaching Kids About Money Money was a very taboo subject for my family. I had no idea what my father made or how much things cost. Today’s society is much more transparent, and it’s important to be open with your kids about money, especially in regards to chores and allowances. While I harbor no ill feelings about the way my financial education was handled, I do want my kids to have more solid footing when it comes to finances, saving, and spending. My children are currently seven and four years old, and a few months ago, I decided it was time to institute an allowance to pay for chores. While we’ve experienced some growing pains along the way, my husband and I have finally gotten the hang of it. There are a number of tips you can follow to make the best use of an allowance to teach your kids about personal finance: 1. Don’t Offer “Free Lunch” As I was researching different ways to approach an allowance, I found there are two types of people – those who “pay” their children for chores, and those who simply expect their children to do chores because they’re members of the family. While I do agree that kids should pitch in because they’re part of a family, I also believe chores can be a good way to teach work ethic, and that an allowance is only provided when it’s earned.
In the professional world, cash flow is directly related to work production and performance, so it’s important to start teaching kids at a young age that money is earned. 2. Offer Spending Guidance As a child, I didn’t receive guidance on spending or saving. When I received my allowance, I felt free to do whatever I wanted with it, and I continued to be a diehard spender well into adulthood. That’s why I’m dedicated to teaching my kids the importance of spending money wisely.
3. Create a Simple Budget Recently, my daughter asked for a toy from a popular build-your-own bear store. The price was much too high to justify buying the item outright, so I gave her the opportunity to save her own money and earn the toy by doing extra chores. For inspiration, we printed off the online product page with the listed price. I was amazed at how dedicated she became to earning the toy. After three months of careful budgeting, she saved every penny and purchased the stuffed animal herself. In addition to the gratification she experienced from earning her own toy, she also learned its value, and as a result, she takes better care of it than she does any of her other toys.
4. Teach the Art of Negotiation One argument against paying your child for chores is that he or she will eventually request more money for doing the same activities. I agree 100% with this statement, but I don’t think this is a negative thing. A 10-year-old without many monetary concerns may agree to a $5 allowance for mowing the lawn, but when he or she turns 16 and wants to save for a used car, $5 may no longer be substantial motivation. Instead of automatically turning down an allowance increase, give your child the chance to negotiate a better rate.
5. Give Positive Reinforcement One of the best ways to teach your kids about money management is to offer lots of praise. When your kids do their chores and spend their money wisely, let them know you recognize their smart behavior.
Final Word Ultimately, the way you choose to teach your kids about money is completely personal and should be adapted to meet your family’s needs. What works for my family may not be right for yours, so don’t be afraid of a little trial and error. The important thing is to focus on teaching kids about money, and also that they shouldn’t always rely on the Bank of Mom and Dad. Starting this process early helps set the foundation for smart financial decisions in the future. We all want to raise kids who are happy, well adjusted, and, let’s face it – financially successful.
But if you haven’t got your own financial life sorted out just yet, how do you make sure to focus on financial education for kids, starting from early stage. T. Rowe Price, the popular investment firm, surveyed over 1,000 parents and adults and found parents have a massive effect on whether their kids have good or bad financial habits. Here is a simple five-step plan to help instill good financial habits in your kids. Give an Allowance The best way to teach kids about money is to give them small amounts to control. Research has found, children who manage their own money have better money habits than those who don’t. You can give your kids a set amount each week. Or you can pay them for doing chores or tasks around the house. You can also start small and start young when teaching your kids about money. Some people give an allowance to kids as young as three years old. You’ll need to make sure you have some dollar bills on hand and set a day and time you’ll pay out the allowance. Just like anything with kids, consistency is key! Decide on the amount you’ll give. When your children are younger, you can start with $3 a week. As they get older, you may want to double it to $6, and perhaps top out at $10 per week when they’re preteens. Teach Kids How to Save To teach kids not all money is for spending, you can use the jars method popularized by radio personality Dave Ramsey. Create three jars for each child: a saving jar, a giving jar, and a spending jar. The jars don’t need to be fancy – Mason jars or old yogurt quart containers will do. Use a permanent marker to label each jar. When you give your kids their weekly allowance, have them put $1 in the saving jar, $1 in the giving jar, and the rest in the spending jar. The act of dividing up their money each week is an excellent way for kids to see and experience putting their money into different places. You’ll be teaching them it’s always essential to have some money saved for emergencies and to give some money to people or organizations needing help. Eventually, when your child has built up some savings, you can help him open a savings account paying interest. You can even pick a savings goal, like buying a car when he turns 16. Or saving up for a trip or unique experience when she graduates high school. From time to time, you can open up her online account and show her how much money she’s saved. For kids, having a financial cushion they never touch helps them understand the security a savings account can bring. Let Them Spend After a few weeks, your kids may start talking about the spending jar. They’re ready to buy something. This is a great time to teach kids about delayed gratification. The toy in question will probably cost more than they have saved. This is the time to explain they have to wait a few more weeks until they’ve saved enough to buy the toy. And that no – they can’t dip into their saving or giving jars to make up the difference. You can also allow them to do chores around the house to earn additional money. This a great way to teach kids about making money when they want extra. They can get it by working for it. It will be hard for them to wait, and they’ll probably whine and complain a little. This is your chance to stand firm and let them know they have to wait and learn patience in the process. Kids don’t always like learning hard lessons, but they’re crucial for us as parents to teach. That “need it now” attitude can turn into serious credit card debt. And it may be avoided because of money lessons you taught them as kids. Your kids will probably make at least one terrible buying decision too. It might be an overpriced piece of plastic that falls apart right as she takes it out of the box. Or it could be a Lego set she loses interest in as soon as she puts it together. When these things happen, you can ask questions about those purchases. “Did the toy make you happy?” “It took you a long time to save for that set. Was it worth it?” Gradually, your kids will figure out certain purchases, such as buying movie tickets or going out to eat at a favorite fast food restaurant, make them happier than the toy they saw advertised on TV. These are financial lessons you can’t always teach – they have to be experienced. Which is why giving your kids the freedom to make bad buying decisions with small amounts of money, will help them make better decisions with more significant amounts as they get older. Show Them Giving Is Important When we teach our children to give, we’re helping them become more compassionate and grateful. The giving jar is a way to model kindness for our kids. As their giving jar fills, your kids can research charities they’d like to donate to. It can be a local family in need, your church, a food bank, or a school initiative – like saving money for kids with cancer. If there is a family with a new baby in your neighborhood, your child could donate part of his giving allowance to purchase the food needed to prepare a meal for the family. And as a bonus, you could make and deliver that meal together. Talking about their gifts to others is a very powerful teaching tool. “Look how thankful our neighbors were to get a meal from us. You helped make them so happy!” “It was so kind of you to donate your giving dollars to the food pantry. Lots of families who have trouble buying groceries can go and pick out food now.” It’s also important not to diminish your child’s contribution just because it’s small. She should see that every dollar counts and that she can make a difference. Teach Kids Money Habits Consistently The best way to teach kids about money is to stay the course. If you forget to give them an allowance for a few weeks, challenge yourself to get to the bank for some dollar bills. Then start again. Or check out a tool such as Greenlight or FamZoo, an award-winning app acting as a private family banking system. It’s designed to help parents teach kids to earn, save, spend, and donate money wisely in a safe, friendly environment. Parents define the virtual family bank rules to match their family’s unique values. And this tool helps busy parents teach their children about money in the most realistic setting possible – daily family life! Letting your kids be in charge of some of their spending, month in and month out is a great way for them to develop confidence in their ability to manage their own money. You can do it, Mom (or Dad)! Give an Allowance. Teach Them How to Save. Let Them Spend. Show Them Giving Is Important. Be Consistent. |
AuthorHi! I am Tim Connolly and I am providing help to parents to bring up their children in a healthy environment. I am working in this profession from last 5 years, if you have any query regarding this please contact me. Archives
June 2021
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