Lessons and tips for tots, adolescents, and parents. Many parents wonder whether they or the school should be teaching their kids about personal finance.
It is the responsibility of both parents and the school to educate young people about money. Financial education starts with the family and is reinforced in school — and throughout life.
Lesson one: Kids see you interact with and handle money, so it’s important to set a positive example and demonstrate good behavior. You should also have conversations with your kids that don’t feel like a lecture to them.
We at the National Endowment for Financial Education (NEFE) offer the following age-specific tips for teaching your children about spending, saving and managing money in practical ways.
Ages 2 to 4
* Introduce coins to your kids, helping them sort the coins by like kind and explaining the concept of equivalency (e.g., five pennies equal a nickel, two nickels equal a dime). In an electronic world the concept of the tangibility of money is diminished. We need to show our children physical money so it becomes real to them.
* Give your kids a clear jar or piggy bank, so they can see money accumulate and know it’s still there.
* Play a game of “store” with your kids, using change from their jar or your own wallet. Play the part of a customer while your child is the cashier; then switch roles.
Ages 5 to 7
Financial education is important at this age to provide the tools and knowledge to compete economically in the future.
* As your kids approach school-age, let them handle money on a regular basis so they can become comfortable with cash.
* Depending on your circumstances, you may start providing a small allowance. If you choose to give an allowance, be consistent and set some ground rules.
* Establish a set allowance amount. You may consider having it correspond to your child’s age.
* Determine whether your child will have to earn the allowance. Do you expect your child to complete a few small weekly chores in exchange for the allowance, or will those household duties be separate?
* Set expectations for what your child will need (or is allowed) to pay for from that allowance: snacks, school lunch, outings or video games.
* Pay the allowance the same day weekly.
* Let your kids learn from their mistakes. If they choose to spend the entire allowance the day they receive it, point out the mistake without bailing them out.
* Use the allowance as a tool to help teach money management, not as a method of punishment or reward.
* Start discussing the concept of credit and debit cards. Your child surely has witnessed you withdrawing cash from the ATM or using credit cards to purchase everything from gas to groceries. Help your child make the connection that these cards represent money.
* Take your child to the bank when you deposit money in your account.
* Review credit card and bank statements with your child.
* Let your child count the money that comes out of the ATM and review the receipt with you.
Ages 8 to 10
As your kids get older, they undoubtedly will become interested in where money comes from and where it goes.
* Explain how you earn money, and discuss how your kids might generate their own.
* Go over your family’s major monthly expenses such as housing, food and transportation, and explain how much they cost.
* Once your child understands the meaning of income and expenses, talk through the difference between needs and wants.
Ages 11 to 13
Preteens often are pressured by their peers to keep up with the latest and greatest. Use this opportunity to be a strong role model and demonstrate for your child how to make smart spending decisions.
* Share past spending mistakes and what you learned from them.
* Consider increasing your children’s allowance as they get older, and help them develop a spending plan.
* Introduce the concept of long-range savings and investing.
High school is a great time for your kids to put into practice what you have taught them over the years.
* Pay attention to where your kids are getting financial information: Are they using apps, or playing video games with a financial component? Many games include a “savings plan” to upgrade characters, or provide add-ons. Being aware of your children’s interests will help integrate financial conversations with a topic they are interested in.
* Take your teens to the bank to open a checking and savings account in their name. Consider adding a pre-paid or bank-secured credit card to help your kids establish a credit history and good credit practices while still under your roof.
* Encourage your teens to get a job, so they can start managing their own income and saving for big tickets items such as a car or college education.
* Advise your teens to continue their financial education by seeking out classes, field trips and online resources.
Paul Golden is the director with smartaboutmoney.org.