As children grow, parents and teachers seek ways to educate them in every subject to help them reach success in adulthood. Unfortunately, the subject of finances is often overlooked. While it's important to gather knowledge and seek a good career, most of this planning is in vain when careful saving and spending habits are never acquired.
American families have a spending problem. U.S. credit card debt has topped $1 trillion with the average household owing over $16,000 in credit card debt. With numbers like that, it shouldn't come as a surprise to learn that 1 in 5 American kids fail to meet baseline levels for financial literacy proficiency. Parents hoping to help their children avoid becoming part of the problem are seeking ways to educate them about good spending and saving habits. Increasing your child's financial knowledge is a hands-on process that should be started early. Here are 5 ways to help your child work toward a successful financial future at any age.
Age 2 - 4: Learn Counting With Money
In today's digital world, currency is often spent without the physical aspect of money changing hands. This process makes the value of money difficult for children to understand. Help your child avoid this trap by using money as a counting tool. Teaching toddlers about the world around them can be easier simply because they are always at your side. As your child learns about counting, you can transition to the idea of how many pieces of change she needs for a piece of candy at the store. These early lessons set the foundation for the idea that money has a source and limits.
Age 5 - 9: The Piggy bank Phase
Teaching your child the value of saving money early can lead to a lifetime of good financial decisions. When your child enters school, he or she begins to learn about certain responsibilities like keeping up with his supplies. This is also a good time to introduce the idea of chores and earning money. When your child works to earn money, it often holds more value than instant gratification. When your child is old enough to receive money for chores or birthday gifts, he or she is old enough to understand the concept of saving. Consider using a clear jar instead of an actual piggy bank to allow your child to see the money grow. Children are often eager to spend money immediately, so discuss how much should be put into the jar and perhaps allow a portion for immediate spending.
Helping your child set saving goals is a good way to help him learn the rewards of patience. Whether your child is dying for a new toy or an expensive pair of shoes, help them figure out how long they will have to save their money to earn a prize. If they decide to spend the money early, remind them how much longer it will take to reach the goal.
Age 10 - 14: Open a Bank Account
Visit your bank to inquire about the options for junior bank accounts. You may be surprised to find many options for spending accounts for children under the age of 18. Prepare your children for their trip to the bank with a conversation about interest and the bank's job of holding money until their ready to spend it. Before your visit, discuss any parental restrictions you expect your child to follow as a responsible account holder.
While children are eligible for certain savings accounts, a checking account that will allow them to spend money must be a joint account. Allow your children to interact with the bank representative as they learn about the new account. After your visit, purchase a file folder or binder to keep all bank information in one place. When your children receive their monthly statements, review the details to help them understand the language of finance.
Age 15 - 18: Encourage Independence
At age 16, your child is eligible to seek employment in many positions. If they haven't been using a debit card in the past, now might be a good time for them to obtain their own. Discuss your teen's saving plans and personal bills. If they are driving their own car, remind them to consider the daily cost of gas and food while working. Help them learn to track their spending habits online and learn from their mistakes.
The teen years are a great time to discuss saving for long term goals. Whether your child dreams of traveling to a college across the country or moving into their own apartment, they'll need a substantial budget to get started. Learning actual numbers regarding the cost of living will prepare your child for financial success in the future.
Age 17 - 19: Set up a Personal Budget
As your children works her way through high school, they might accumulate certain bills of their own. Before they go off to college or moves out of the family home, it's important to step back and allow complete financial independence. Get together and make a list of your child's monthly bills (car insurance, cell phone bill, miscellaneous service bills). Add necessity expenses like gas and work clothes. Use this total to help them understand how much of their paycheck is used to pay bills.
Take the time to discuss financial burdens often considered by young adults. Are they hoping to purchase a new car or get a credit card? Factor these costs into their budget to provide a visual lesson of the limits of their income. Explain the dangers of credit card debt and encourage your child to only use credit for emergencies or keep the limit to something they can pay off each month. As your children approach the age they will live on their own, avoid bailing them out of careless financial decisions. Allowing your child to solve these problems responsibly will lead to better decisions in the future.
As you teach your child about financial responsibility, it's important to set a good example. Follow your own advice by practicing good spending and saving habits. Avoid using credit cards for instant gratification, and practice the same patience you expect from your child. These responsible financial decisions could help you plan a family vacation or prepare for early retirement. To learn more about teaching your child financial responsibility or to see our selection of financial education tools, visit the Hudson Heritage Federal Credit Union website today.