How good are you at managing your money? Are you good at it or do you wish you could be better? No matter how you answer those questions, you probably want your kids to be at least as good if not better with their money than you are. This is why you should make financial literacy for kids a priority in your family.
Good money management is a life skill. Not all parents teach it well. But as a mom or dad, you’ve probably learned a few lessons about managing your money, even if you wish your own financial knowledge were better.
Children start learning about money at a young age. They see you pay for things. They learn about coins, with even a penny being an exciting find when they’re young. There’s so much more to teach them, of course.
Preschool
This is the age when kids are becoming aware of money. It’s time to take their first small steps in financial literacy. Help them become aware of the role money plays in the everyday life of your family.
Talk About Earning Money
Kids need to know that the family’s money comes from one or both parents working. It doesn’t just appear from nowhere.
You don’t need to tell small children what you earn – they have no concept of numbers that big and it would seem like unlimited money to them even if you struggle to pay all of your bills. But you can explain to young children that adults have to work to get the money they need for their home, food, and more.
Talk About How You Spend Money
Take your children grocery shopping so they can see how you decide to spend money. Explain why you make a decision in the store when it’s based on cost. This is something you can keep doing as they grow, giving more information as they get older and more able to understand why the difference matters.
Within reason, you can tell your kids when you decide to not spend money because you can’t afford it. You don’t want young children to worry about the family not having enough money, but they should understand that you have to make smart financial decisions. Sometimes that means eating at home rather than eating out, or skipping a treat they might have gotten otherwise.
Let Them Spend Money
If you’re getting your child a treat at the store, give them the cash to pay for it. If they have money someone else gave them as a gift, let them pay for whatever they choose to spend that money on.
Kids can have a hard time learning that they don’t just give the cashier the money and walk away. I had to remind my kids several times to get their change when they were little, even though they had been reminded to expect it. Their concept of money had little to do with the amount the cashier said or what they handed to the cashier. Accepting their own change back helped them begin to understand that there was more to it than “give the cashier your money.”
Don’t Give Them Everything They Want
Kids want so much. This toy, that treat, hey can we go there? When you can afford to do it, it’s tempting to let them have what they want. That doesn’t mean it’s a good idea.
Don’t give your kids everything they want, especially not right away. Teach them that some things must be earned, while other things need to wait for the right time.
If there’s a toy they really, really want, have them wait until they’ve saved enough money for it or have them put it on a wishlist for a birthday or holiday. Kids don’t need lots of new toys throughout the year. The lesson in patience will be far more valuable. An even better lesson is learned if they decide they really didn’t want the toy before they get it. You know how often kids change interests when they’re young, and there’s always the next desperately wanted toy coming up.
Help Your Kids Save Money
If your child doesn’t already have a piggy bank, get one. There are all kinds of fun options, from the traditional pig shaped ones to banks that count how much money is put into them.
I find simpler piggy banks better for young children. While it’s nice for a child to be able to look at their bank and know how much is in there, it’s a better lesson for them to have to count the money out to see what they have. This helps them learn the names and values of the different coins, and how to add them up.
Elementary School
In elementary school, kids should start learning more about money. They should hear about some basics at school, such as the names and values of the coins, but you may have started them on that already. Your kids should continue to increase their financial literacy in elementary school in several ways.
Decide How Your Kids Will Earn Money At Home
To give an allowance or make it money that your kids earn is something parents can argue extensively about. There are good points to both sides.
Some parents prefer to give an allowance regardless of what chores have been done to demonstrate that your chores are something you do because you’re a part of the family. They believe that’s the most important lesson.
Other parents prefer to pay kids based on the chores they do because you aren’t just given money when you’re an adult – you have to earn it. They believe that’s the most important lesson.
And of course, there are paths between. Some parents may give a base allowance, with extra for chores beyond the basics.
I’m not concerned with how any one family gives their kids money. The big recommendation I have is that you don’t give them too much.
Make sure that they have to save up when they want something special. If they never have to think about whether they can afford something or not, they aren’t learning the most important lessons of all about money management.
Help Them Plan Their Saving And Spending
Kids in this age range should be saving up for the bigger things they want to have. You can help them figure out how to do that, especially when they also want something they can afford right now. Kids are great impulse shoppers, so it’s the perfect time to teach them to get that under control.
Talk to them about the best way to get each of the things they want. It will take time for kids to learn that even little purchases such as a candy bar at the store add up over time and make it harder to reach their big goals.
Teach Your Kids About Giving To Charity
Elementary school age can be a great time to teach your kids about giving to charity. This doesn’t have to mean money, however! You can also teach them to give their time to a favorite cause.
My kids and I, for example, volunteer at a local animal shelter. We help with the laundry and help socialize the cats so they’re friendly and ready for a new home. This costs us time rather than money, but we love the cause.
In many ways, it’s easier for kids to give money to a cause, if only because the volunteer opportunity for young children are limited. Most animal shelters have strict age minimums, often somewhere in the teens. It is possible that they can find a retirement home that welcomes young visitors or that your kids can help with a park cleanup – while supervised by you, of course!
Giving money to charity is a good idea as well, of course. Children should learn that these causes need money to do the good things they do, not just volunteers.
Middle School
While your middle school age child isn’t old enough to get a regular job yet, odds are that he or she is becoming more interested in having more money. You probably know by now whether your child saves money readily or spends it too quickly. It’s time to help them refine their financial literacy and responsibility.
Talk About Their Money Goals
What do your kids want to spend their money on? The older they get, the bigger their wants get.
Most kids in middle school, for example, really want a good smartphone. Depending on your beliefs about when a child should get a phone, they may have one already, they may have a very basic phone or no phone at all. My kids each start out with an iPhone 4, which was dated even when my oldest got it, and limits on their use. We go through Ting, which makes phones for the kids very affordable. Each line is about $6 plus usage, and if you have limits on the account, that won’t be much at all.
If a top of the line smartphone is your child’s goal, you need to consider what you’re willing to permit. Even if your child pays for it, you will still need to put appropriate limitations on it, after all. If your child doesn’t have a phone yet, you may also need to discuss how monthly billing will be handled.
If your child wants something you don’t want them to spend their money on, talk about why. Give your child a chance to change your mind. It’s much easier for them to respect your “no” if they understand why and feel that their side has been heard.
Talk About Their College And Career Goals
Career goals go hand in hand with money goals in many ways. It’s never too early to start saving for college if that’s what it will take for your child’s preferred career.
It’s also a good time to start looking at scholarships. Some can be earned quite a few years before your child gets into college. College is expensive, so every bit that can be earned for it will help.
Encourage your child to put aside some of their money for whatever career training or college they will need. Setting up a 529 account can be a big help, especially as other people can add to it for birthday or holiday gifts if they like.
Open A Savings Account
If you haven’t opened a savings account for your child already, now is a good time to do so. Most savings accounts won’t earn anything worth mentioning in interest, but it’s a better way for them to save money, especially as the amount increases beyond a reasonable amount to have in cash.
You can even consider opening a Roth IRA for your child. This is a great way to talk about compound interest, and how the small account you start now will grow into something significant by the time they retire.
High School
High school is a great time to have your child practice spending the way they would as an adult. That time is getting close, after all.
Give Them A Clothing Budget
Some teens are obsessed with having just the right wardrobe. Others really don’t care. Either way, the teen years are a good time to give them a clothing budget and have them handle their own clothes shopping.
This needs to take into account, of course, the fact that kids can have sudden and significant growth spurts. At the same time, you don’t want to give your teen an excessive amount of money for clothes. You want to teach them to plan their purchases based on their needs.
Giving a teen a clothing budget is a great way to teach him or her to shop for bargains. If they realize that they can get more if they wait for sales or shop at thrift stores, they’re likely to do so. It’s a great lesson for all those times in life when a budget is necessary. Cash is better than a limit on a credit card since you cannot possibly go over with cash.
Make a plan for how you handle mistakes. You don’t want to make it so easy for your teen that they don’t care about their budget, but you also don’t want them humiliated by having too few clothes.
Make Them Do The Grocery Shopping
Give your teen a budget, and make them do the grocery shopping at least some of the time. Have him or her plan out the meals and make a shopping list. Be sure they consult the current grocery ads for the best deals.
Expect mistakes, especially the first few times. You know that you forget things at the grocery store too. When my teens help shop, they help cook too, so they’re very aware of mistakes.
Make Your Teen Get A Job
The teenage years are ideal for that first job, especially once your child hits 16. Younger teens can sometimes find babysitting, pet sitting, or lawn care jobs.
You can help your teen prepare for interviews, but don’t go along or interfere. You hear stories of parents sometimes wanting to be there when their child interviews for a job. With most employers, that’s a great way to ensure that your teen does not get the job. Encourage their independence and send them to handle interviewing and holding down a job on their own. They may fail occasionally, but failure is a great teacher.
Teach Them About Household Budgeting
As your kids reach their teens, they begin to understand what things really cost. Especially as they reach their later teens, have your kids go over the household budget, so they see how fast things add up. Help them see how the costs they can expect when they move out are different from what you pay for the entire family.
Discuss College Or Career Training Financing And Costs
As your teen approaches their later high school years, you need to start figuring out what comes next. College costs have gone up dramatically, and many families will struggle with the costs. Financial aid can be a huge help, especially if your teen can get grants or scholarships, rather than just loans. Use resources such as https://fafsa.ed.gov/ and https://studentaid.ed.gov/sa/ to learn about what’s out there to help.
Don’t immediately dismiss career ideas that don’t require college. Some still pay very well, and if that’s what your teen wants to do, there is little point to paying for college.
Do discuss having more than one career option, especially for teens who have big dreams in hard to get into careers. I have one teen who wants to be an animator. It’s a lovely dream, but the reality is that it’s a hard industry to break into, and very hard to make a living from. She’s also considering civil engineering, so we’re discussing the merits of having a major and a minor versus a double major.
That dream career might take off, after all. There’s no point to giving it up entirely so long as other ways to make a living are considered.
College
Your kids won’t stop looking to you for help just because they go off to college. Be ready for them to have money problems that you need to help with. If you’ve been working with them for a while, they should have at least some level of financial literacy, but the reality of moving out and/or going to college can challenge what they thought they knew.
Have Your Young Adult Manage Their Money Online
Set your young adult up on a site such as Mint.com. Get them into the habit of tracking their income and expenses right away, so they always know where their money is going. It’s easy to lose track of spending when being on your own is so new.
Discuss Credit Card Risks
There are good reasons to have a credit card. It’s there for you in an emergency. It helps you build a credit history, which is a help when making big purchases such as a car or house later in life. Some jobs even check credit histories. You may need to cosign for your young adult’s first credit card.
A credit card can also result in disastrous mistakes.
It may be best to encourage your young adult to get a secured credit card first. It’s not fun having that money sit there as protection in case they have trouble paying on the card regularly, but it also keeps any financial problems from being too serious on the credit card side of things. It shouldn’t take too long to build up enough of a credit history to do away with the deposit if they’re good about making payments when they use the card.
Make sure your young adult knows when to use a credit card. Never use it if you can’t pay it back right away, short of an absolute emergency. Even an emergency use shouldn’t take long to pay off.
Think Before You Help Them Financially
Young adults often have money trouble. They don’t keep enough savings around for emergencies or possibly for their college textbooks.
It’s good to help your kids out when it’s reasonable, but don’t do it so much that they expect you to help every time they have a problem. They need to learn to face the consequences of poor financial decisions, and a lecture from mom or dad plus the cash to fix it is not always the right solution.
That said, my mother and my in-laws all still help us out sometimes if it’s needed. It’s not a bad thing so long as it isn’t overdone.
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