Cradle to college
How to give your children a solid financial education
Parents need to teach their children a lot in their early years, including how to walk and talk, and you may think that money management is something that can be put off for later. But if you want your children to become financially responsible adults, their fiscal education should start early.
Tell tots about needs and wants
Although it might seem like jumping the gun, even 3- and 4-year-olds can begin grasping concepts such as needs and wants, as well as the idea that most people can’t buy everything they see. So it’s important to start explaining to these tots about the relationship between work and money.
A trip to the supermarket can be a great learning experience. Point out to your kids how different products cost different amounts, and explain when you feel it’s worth spending more and when a lower-cost version will suffice.
Give grade-schoolers an allowance
Grade school often is the time when parents provide allowances as a way to help their children live within a budget. Before handing over the cash, however, talk with your child about the purchases you expect the allowance to cover, such as video games. Otherwise, you may get ongoing “requests” to handle expenses your offspring believes shouldn’t come from his or her allowance.
Also introduce values to the discussion. Younger children are quite capable of grasping the concept of using their money and other resources to help those who don’t have as much. The value of delayed gratification — or saving for big-ticket items and longer-term goals — is another idea you might want to impart.
Moreover, it’s important to think through the relationship between your child’s allowance and the chores he or she is expected to handle. Some parents view an allowance as strictly a money management tool and that, as members of the family, the kids should have chores that they’re expected to handle without compensation. Of course, this isn’t to say that a child can’t receive extra payment for handling chores that go above and beyond day-to-day tasks.
Trust tweens to make bigger decisions
As your child gains experience handling small amounts of money, ask for his or her input on financial decisions. Before heading out to buy new school clothes, for example, discuss what items your child needs the most, and whether it makes sense to buy several less expensive items, or one pricier product.
Given how tuned-in many “tweens” are, discuss with them how advertisements are designed to prompt consumers’ desire for a specific brand or product. As an example, point out that a popular brand of shoes costs significantly more than a store brand, and ask your child if the difference in cost is worth it.
Middle-school years are also a perfect time to open a bank account in your child’s name. Use this opportunity to explain how to record deposits and withdrawals, and provide a simple calculation to demonstrate the compounding effect of interest.
Help high-schoolers become independent
High-schoolers can be expected to take on greater responsibility for their own expenses — including clothes, entertainment, mobile phone use and transportation costs. When practical, bring your teenager into the discussion when you’re researching major purchases, such as a new car. He or she can read product reviews and descriptions, and compare features and prices. Just make it clear at the outset that you’ll have the final decision.
If you believe your teen is ready to handle a credit card, a safe way to start is with a secured card. As its name suggests, this line of credit is secured by cash deposited in the account. Once your child has proven to be capable of handling the line of credit, you may decide to allow him or her to open a regular credit card. But make sure you review the rules of responsible credit card use and the speed with which debt and interest expense can add up.
Consider college students adults
When your kids head to college, they’ll probably make most of their own day-to-day financial decisions and may also assume the long-term burden of student loan debt. These are adult responsibilities; make sure your children are ready for them.