How to Help Kids Become Financial Stars
Financial wellness entails much more than just having money; it includes demonstrating a deep understanding about using money management techniques to reach financial goals. This doesn’t happen overnight, though. Financial wellness means starting early, as money smart kids grow up into financially well adults. Helping kids learn appropriate financial topics will make a difference in their overall financial future. It can seem intimidating to consider teaching kids about money (what if they get confused or overwhelmed?), however there are simple ways to gradually introduce money management to kids and set them on the path to success.
Why It’s Hard to Start
There are two reasons parents may hesitate to start teaching their kids about money: not having learned about finance as children themselves or a reluctance to give up control. Parents don’t need to be finance experts. Even if they were not formally taught about finance, they can still demonstrate good basic money management. And instilling responsible money management principles early on will only encourage kids to do the same with their own children eventually. It can be scary thinking about relinquishing some control on a teenager’s finances; what if they treat their money irresponsibly? At some point, however, that child or teen is going to be an adult in charge of paying for all their bills and expenses. If they have experience handling money, this transition into adulthood will be easier, and they will be more likely to succeed financially.
If you are concerned that financial topics will be too complex for your child or teen, remember that the basics of money are not complicated. Illustrating money management to kids can be condensed into several simple principles that serve as a springboard for more complicated concepts when they get older:
- Value of money
- How money is earned
- Saving, particularly in buying something they want but don’t have the money for now
When it comes to teaching children about money, stick with the basics: what money is, what it is used for and how it is earned. An allowance is an effective way to demonstrate these ideas, although make sure the money comes in exchange of some type of work or chore. This will help to establish early on that money doesn’t just come from anywhere, but that parents earn money through work.
Once your child is old enough to understand what money is and its role in buying things, it is now time to introduce saving. A great way to illustrate saving is with an example. Have your child select a toy they want in the store and take a look at the price together. If the toy is $25, but they only earn $5 a week from their allowance, this is the perfect opportunity to explain that often people don’t immediately have the money to buy something they want; they save for it. Help your child save some of their allowance to buy the toy together to demonstrate how saving pays off in the long run. Treat saving as a regular habit that everyone does.
Next, it’s time to show where money goes once it’s earned; a bank account. Many financial institutions offer youth accounts, like Earthmover Credit Union’s Dewey Savings Account or Teen Investment Program Savings Account. A youth account is a fantastic way to build a lasting relationship between your child and the financial resources available to them as they get older. Make sure the account doesn’t sit gathering dust. Parents and children can go into the credit union together to check the balance regularly and get comfortable interacting with the staff. Have your child deposit their allowance or birthday money from relatives into the account, to see how the balance increases. At this point, parents can show older children how interest accrues in their account – making money from money.
In a few short years, teenagers will no longer be teens. It is crucial that teenagers are able to learn about money management in an applied, hands-on approach to prepare for adulthood.
First, consider the different ways that teenagers can earn money in order to have something to manage, spend and save. Part-time and summer jobs are an excellent idea, but if your teen is too busy with school and extracurriculars for a regular work schedule, there are other options. Babysitting is a great choice with flexible hours. Teens can also help out neighbors by shoveling snow in winter and performing yard work in the summer. An allowance could be given in exchange for housework and caring for younger siblings. Or maybe your teen has a particular skillset, like jewelry making, that they could profit from.
Now, find ways that your teen can take some responsibility for certain bills or purchases. This is likely to be unique to your family’s situation and dependent on the amount of money your teen earns. For example, many teenagers pay for their own gasoline and/or car insurance, while the parents cover the car’s monthly payment. Your teen could be in charge of paying for all their own clothes, shoes and accessories with their money. Certain large purchases, streaming subscriptions or equipment for extracurricular activities could be split halfway between teens and parents. Again, tailor the level of responsibility your teen has with your family’s own situation and income.
In addition to setting clear expectations of what is the teen’s responsibility to pay, this is an opportunity to discuss the real-life penalties of irresponsible spending. If your teen doesn’t have any money left for gas because they bought something they wanted but didn’t need, this is an opportunity to demonstrate that money doesn’t just appear in difficult circumstances; it has to be earned and managed. If parents are worried that trusting their teenager with money may be too much for them, remember that in only a few years they will be responsible for their own finances. Letting them get the practice now with their parents available to guide them will only help them in the future.
A Lifelong Journey
Gradual responsibility is the key to successfully learning and maintaining responsible money habits. Starting early means that parents can slowly introduce new concepts to their kids over time. Children and teenagers may not fully understand the value of money – to them, it’s something that just appears for parents to use. Teach kids early on that money has to come from somewhere and that it needs to be responsibly managed through saving and conscientious purchasing to last.
We have collected several great resources from the Consumer Financial Protection Bureau to kick start the discussion between parents and kids about money. Conversation starters for kids, conversation starters for preteens and conversation starters for teens will help parents figure out how to introduce financial topics to their kids. The U.S. Government Bookstore has free publications on youth financial education.
Financial wellness is a lifelong journey, so there is always an opportunity to learn more and grow.