January 22nd, 2013

How to Educate Your Children About Money

Nico Leyva writes for NerdWallet.com, an unbiased consumer finance website dedicated to promoting financial literacy.

156792313When it comes to money, you’re one of your child’s best role models. Parents can help their kids realize financial independence by introducing them to monetary concepts at a young age. Here are some great tips for helping your kids develop valuable personal finance skills.

Start the conversation now

When it comes to understanding how money works, it’s never too early to start learning. If your child asks if they can borrow $5, don’t respond immediately. Instead, use that situation as an early opportunity to teach them about money management and financial responsibility.

Encourage them to save

For very young kids who are just learning basic math skills, show them that the money they get from Grandma and Grandpa for birthdays and holidays increases over time when they don’t spend it immediately. Store savings in a shoebox or jar, so your child can physically see the money increasing.

Open a savings account together

If your child is a little bit older and knows how to spend money, open a joint savings account for them and show them the balance each month. Show them their name on the account so they understand that it belongs to them.

Give them an allowance

Allowances are very important for young kids because they give them the benefit of feeling and seeing physical money. Talk about the different ways they can spend the money and set expectations right away.

Help them set savings goals

Knowing how much you give your children daily, weekly or monthly (and accounting for the odd toy or candy diversion), put charts on the refrigerator showing where they stand each week or month and how far they are from their savings goals. Reward them for reaching or coming near to their goals. This will help them understand the value of saving and being responsible with their money.

Talk with your teen, too

72% of high school students polled in a recent College Savings Foundation survey thought that it was their responsibility to pay some or all of their college expenses, and 48% said they had already started saving. However, a 2010 Capital One back-to-school survey showed that only 27% of teens’ parents discuss banking or money management with them. Teens are more aware of economic realities than we give them credit for, and they are willing to take financial responsibility into their own hands. You can help by providing guidance and answering their questions.

Get your teen a checking account

If your teen is working their first job as a babysitter or cashier at the local market, learning about saving is still very important, but opening a checking account in their name will help them get into a rhythm of making deposits, using an ATM/debit card and balancing their checkbook. Even with the advent of online banking, physical account balancing in a checkbook is still a good tool for teens to help track their spending, because they have to enter each purchase by hand.

Thanks for taking the time to talk with your kids. We can help the next generation be better prepared for the harsh realities of a global economy if we help them develop basic understandings about saving and financial responsibility at an early age. If we do so, we give them a leg up in life, and a strong sense of confidence and independence when it comes to finance.

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