Teaching your kids to make smart money decisions should start early.
Ever wish your parents had taught you more about money? Your children just might feel the same way. Surveys show that while many children are eager to know how to manage money and learn how banks and credit cards work, only about half of parents regularly talk to their kids about financial matters.
How and when do you impart the right lessons to raise a financially smart child? Here are some financial ages and stages to help you get started.
Preschoolers (3 to 5) Although it seems early, there is a lot you can teach in early childhood, according to MoneyasYouGrow.org, a resource for parents created by the U.S. Advisory Council on Financial Capability. Along with the names, shapes and values of coins and dollar bills, young kids should be able to grasp money concepts by age 5. Explain how you need money to buy things, you earn money by working and you must make choices with your money. The Ant and the Grasshopper or similar stories can help children make sense of the importance of hard work, financial planning and saving for a rainy day.
School age (6 to 9) Shopping with children offers many teaching opportunities, including how to make a list, stick to a budget and compare prices. If your child spends time on a tablet and regularly asks for apps, you can use iTunes or other virtual currency to help kids understand that even when you can’t see money, there is a finite amount available, and you must make choices on how to spend it.
If your child’s piggy bank is overflowing, visit a local bank branch and open a savings account. Many banks offer special savings accounts for kids. Look for those with very low or no fees and a low minimum balance to avoid paying too much in expenses. If you decide to give an allowance (roughly half of parents do, surveys show), encourage your child to save a portion of every dollar they earn.
Preteen (10 to 13) Want to entertain and amaze your child? Believe it or not, a lesson in compound interest – money earning money over time – should do the trick. With a quick Google search you can find a multitude of sites and videos to illustrate the concept. The lesson: the earlier you begin saving, the more your money can grow. Add incentive with a matching plan, where you contribute a portion (say 25 or 50 cents) to match every dollar saved by junior.
Nearer to the teen years is a good time to start talking about credit, which can be described as a loan in which you must pay back more than you take (like compound interest in reverse). With a credit card repayment calculator, you can illustrate how interest on even a $100 credit card charge can quickly add up.
Teen and college age (14 to 18+) When it comes to teaching financial responsibility, there’s nothing like a hard day’s work. Having a job and a steady paycheck, even a small one, can help children understand taxes and budgeting, the responsibilities of a checking account and debit card, and even long-term saving. As soon as your child is earning income, he will likely be eligible for a Roth Individual Retirement Account (Roth IRA). Dollars go in after taxes are taken out, but the earnings are not likely to be taxed again.
Involve kids in discussions about paying for college and financial aid. Before applying for any kind of student loan, ensure that your child clearly understands the repayment responsibilities after graduation.
Whatever the age, your kids are always watching. Lead by example by making smart money choices for yourself and your family.
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