Are your kids ready to manage their own money? With the recent economic climate in the US, managing money has been difficult for almost everyone, so preparing kids to make smart money decisions has never been more important. Providing financial instruction for kids, as they grow toward adulthood, should help them (and you) feel confident that they can make the most of their future earnings and deal successfully with hard times. How can you prepare your kids for financial responsibility? We’re here to help with a roundup of expert advice and resources to teach kids about managing money. Start by teaching:
Saving at an Early Age
As Forbes points out, lessons about money management for children must start early (Forbes) and be age-appropriate. For the littlest students of finance, up until about 5 years of age, they suggest teaching children about savings (and delayed gratification) by helping your child save for something they really want. Each time the child adds money to their savings total the money saved and help the child figure out how much more is still needed. Ask/discuss how the child plans to attain the goal. (Pick a goal that requires a relatively short amount of time to attain so they can enjoy success without feeling too much frustration.)
CNN Money suggests alloting a regular kids allowance or money earned (CNN Money) for small chores, in accordance with your values. You can even make kids responsible for earning part of their lunch money after they reach around age 10. When considering a “raise,” use it as a teaching moment and discuss the reasoning or conditions. Talk about when the last allowance raise was and/or add new items to their budget and allow negotiating.
Early on, as soon as your child is ready for slightly more detailed decision-making, setup 3 savings containers and help kids divide earnings into funds for saving (Forbes), spending and sharing with the less fortunate. Kids will enjoy being involved in making small money decisions as they learn.
Parents.com takes a practical approach, suggesting teaching while in the bank (Parents) and grocery store. They suggest taking kids to the bank to open their first account between ages 6 and 8. When buying groceries, discuss price comparison and factor in quality. Compare using name brand vs. bargain paper towels, for example, and discuss trade-offs. For teens, try putting them in charge of your next garage sale.
Math Not Money
Neither parents nor schools should attempt to teach detailed financial facts and strategies too early, a WSJ-covered study found. Teaching involved financial concepts can cause kids anxiety about money (WSJ) early on and it has little practical effect on a kid’s/student’s later behavior. What does impact children’s later financial health? An intense focus on learning mathematics; doing well in class and taking extra classes. Thorough math instruction made a big difference in kids and teens managing money later in life, the study found. Much more important than knowing what a derivative is, knowing math inside out helps future adults make confident, sound financial decisions.
Credit and Borrowing
Help kids and teens learn about loans, credit, borrowing and paying interest by explaining while you’re paying for a purchase or restaurant meal with a card. You can also try making an advance on their allowance with a low-interest rate.
Making Smart Purchases
Discuss needs vs. wants with examples provided by you and suggestions from the kids as they learn. Help children learn how to evaluate advertising (as ads come up on TV, radio, online, etc.) for products. Does the ad seem too good to be true? What alternative product might be better? Teach kids how to research buying choices to encourage sound money management.
Hopefully these ideas and resources will help you prepare your kids to manage their money wisely! Have you started teaching your kids about money yet? At Magellan Financial, we have the tools to help you and your children make better decisions by understanding their financial situation. To schedule an initial consultation or learn more about how Magellan Financial can help you plan successfully, please call us at 610-437-5650 or email us at Rob.Cahill@WFAFiNet.com.