5 Rules To Take Care When Teaching Teens About Money
Teaching teens about moneymanagement is a crucial life skill that sets them up for financial success in adulthood. However, it’s essential to approach this task with care and consideration.
Here are five rules to follow when teaching teens about money:
Start Early and Be Age-Appropriate: Financial education should begin early, even before the teenage years. However, the depth and complexity of the lessons should be age-appropriate. Younger children can learn about basic concepts like saving, spending, and sharing, while teenagers can delve into more complex topics such as budgeting, investing, and credit.
It’s vital to tailor your lessons to your teen’s developmental stage and financial understanding. Start with simple concepts and gradually introduce more advanced topics as they mature. This ensures that the information is relatable and doesn’t overwhelm them.
Lead by Example: The saying “actions speak louder than words” holds true when teaching teens about money. They learn a lot by observing your financial habits and decisions. Set a positive example by demonstrating responsible money management, such as budgeting, saving, and making informed purchasing choices.
Involve your teen in family financial discussions when appropriate, so they can see how you make financial decisions and prioritize financial goals. This will help them develop a better understanding of the thought process behind financial choices.
Emphasize the Value of Saving: Saving is a fundamental financial skill that can greatly benefit teenagers in the long run. Encourage your teen to save a portion of any money they receive, whether it’s from allowances, part-time jobs, or gifts. Explain the concept of “paying yourself first,” where a portion of their income goes into savings before any spending occurs.
You can also introduce the concept of setting financial goals, such as saving for a specific purchase or building an emergency fund. This helps teens develop a savings mindset and understand the importance of delayed gratification.
Teach Budgeting Skills: Budgeting is a critical skill that teenagers should learn early on. Help your teen create a simple budget that includes income (allowance, earnings) and expenses (e.g., school supplies, entertainment, clothing). Show them how to allocate funds for various categories, prioritize needs over wants, and track their spending.
Make budgeting a collaborative effort by involving your teen in decisions about their discretionary spending. This will give them a sense of responsibility and control over their finances while ensuring they stay within their budget.
Introduce Responsible Credit and Debt Management: As teenagers approach adulthood, it’s essential to educate them about credit and debt responsibly. Teach them the difference between good and bad debt and emphasize the importance of avoiding high-interest consumer debt, like credit card debt.
When they’re old enough, introduce them to the concept of credit scores and the impact that financial decisions can have on their creditworthiness. Emphasize the need to pay bills on time and manage credit responsibly to maintain a healthy credit history.
In conclusion, teaching teenagers about money is a vital part of preparing them for financial independence and success in adulthood. By starting early, leading by example, emphasizing saving, teaching budgeting skills, and introducing responsible credit and debt management, you can equip your teen with the knowledge and skills they need to make informed financial decisions throughout their lives. Remember that open communication and patience are key to ensuring that these lessons resonate with your teenager and set them on the path to financial wellness.
As parents we teach our children a lot: to count, read, say please and thank you, and, hopefully, be an example to others.
Research shows that parents also pass on their approach to finances. So exactly how are we teaching kids about money from a young age?
Pocket money Compared to some of their European counterparts, British parents with children under 10 are more generous when it comes to paying pocket money. That changes from 10 upwards when they end up paying well below the European average.
Teaching the value of money Your child’s financial education can begin as soon as they learn to count and a great time to start talking about spending and saving is birthdays or Christmas (if they‘re likely to receive a cash gift).
If your child asks for something expensive: an iPhone 7 for £599, or an Xbox One for £199, try to explain to them the time it would take to earn that amount of money. The minimum wage for a person under 18 is £4 per hour, which means it would take 150 hours or nearly three weeks working full-time, to save for that new iPhone.
How to budget An important lesson to instil from a young age is not to spend more than you have. Dividing money into different pots is a great way to demonstrate this as it really helps your child to visualise where their money is going. They can also see that when it’s gone, it’s gone.
Try using two jam jars. Label one ‘Spend now’ and one ‘Save for later’. Talk to your child about how they would like to divide their pocket money or any cash gifts they receive between the two jars. If they keep their savings jar topped up, they can see that they have rainy day money if they need it when their ‘spend now’ jar is empty.
You could also add in a third jar ‘Donate to others’ to show your child that they can afford to help children who may not be lucky enough to receive pocket money for their own jars.
It is a very wise idea to start educating your kids about money when they are young. Of course, we don’t want to deprive them of anything, yet at the same time, we want them to learn the value of money.
Many kids see money go in and out of their parent’s wallets and most don’t know how it got there nor how quickly it can disappear. Teaching kids about money from an early age will only contribute to their success later in life.
The benefits of teaching your kids about money when they are young are that they will soon learn how quickly it disappears when it is wasted on non-essential items, how to spend and save it wisely, understand the habits of wealth and help them to make better choices in life.
If you are an extravagant shopper yourself or are wasteful with money, it does not set a good example to your kids on how to manage money. You cannot complain when they are in their teens or adult life if they keep finding themselves in financial difficulty if you have not taught them well.
It is not up to our teachers in schools to teach kids all about money and how to manage it. The responsibility lies with the parents or the minders of kids! Ways to teach your kids the concepts and vocabulary about money are: Always provide your kids with the essentials to cater to their needs.
Then give them an allowance for a week or month (week for a younger child, a month for older children) and allow them to budget and decide how they spend their allowance over the period.
Provide opportunities for your kids to earn money for their savings. Encourage them to work for it so they see that effort is needed to create wealth and that you have to earn money.
From a young age, offer payment for “extra” work around the house and yard. For teens, encourage part-time or some holiday work. Teach your kids to break down their finances into categories or pools for which they contribute for different purposes.
Establish a saving system with your child with some short term and long term savings. eg: $2 set aside for charitable contributions/church, $2 investing (stocks, bonds, mutual funds), $2 savings for a short term goal like a toy, $2 savings for a long term goal like a swimming pool or college fund, $10 spending on incidentals like the canteen.
Make sure they have a piggy bank and savings accounts. Show your kids a family bill, for example an electricity bill. Set a task to see if you could work together for a month to cut back the bill from the previous month. Make more effort to turn lights and television off when not in the room.
There will be great anticipation to see the next bill. Show them how money compounds and grows. Teach about money in everyday activities, for example when a child breaks a toy they bought themselves, they realize the true value of money if they wish to replace it.
Play money games such as “Monopoly” to help learn money terms and vocabulary. Learning not to spend their savings wastefully will be an important lesson. Kids will feel proud and enthused by their own efforts to save.
Offer praise, encouragement, and congratulate them. If kids really want something big and exciting (that is costly too) for example a trip to the theme park, new plasma TV, or swimming pool, set up a fund for which the whole family can contribute. A jar in a secure place to put spare coins in may work well.
Regularly track the savings to spur on the enthusiasm. Work together and set goals as a family to earn the funds and feel a sense of pride once it is achieved. Kids will learn the responsibility, perseverance, and hard work required to buy such luxuries. By using some of the above strategies, kids will see the benefits of investing and saving.
Teaching them to not always expect money from others will help their relationships throughout life. We are teaching them that they too need to take responsibility if they are to cater for their needs and wants.
10 Mistakes To Avoid When Teaching Your Child About Money
Like it or not, you are your child’s financial role model. Monkey see, monkey do. This is a terrifying idea for those of us who weren’t taught about money ourselves. How can you instill positive thoughts and behaviors around money when you are trying to figure out how to be financially successful yourself?
A good place to start is thinking about your own behavior and trying to eliminate or change some of your less helpful habits. Here are some common ones to look out for.
1. Not talking about money with your kids
Many parents find it difficult when it comes to teaching kids about money. Mostly because they were not taught about it themselves. So they don’t know what to teach or how to teach it. This is compounded by the embarrassment of not having all the answers and even worse, having to admit they’ve made costly mistakes.
However, not talking about money to kids is setting them up for financial disaster. After all, money makes the world go round. We all use it, we all need it. It gives us choices and the freedom to do things for ourselves, our family and our community.
Kids need to know about it so it’s essential we include them in our day to day conversations – like doing the shopping, buying stuff online, going to the bank, budgeting for a holiday. Don’t worry if you don’t have all the answers – honesty is the best approach then they know exactly where their starting point is and won’t get confused when you try fudging your answers.
2. Relying on your child’s school to teach them about money
Some families are comfortable financially and the parents don’t think it necessary to teach their kids money management – there will probably always be enough, even if their kids do make mistakes or miss obvious opportunities. In other families the shame and embarrassment of not having much means they leave it to chance. Either way they hope schools will pick up the baton. This is not wise.
Only six States in the US require a stand-alone personal finance course to be taken in high school. Less than half of States (21) require high school students to take a course that integrates personal finance content into existing classes such as math, economics, civics and career and technology courses. Is five to eight hours in a course enough? Of course it’s not.
And this is at high school level. Research has shown that a person’s financial habits may be established as early as seven-years-old. By this stage many kids have already got into bad habits of instant gratification and spending beyond their means.
They don’t know the value of money, that it is usually hard earned, it doesn’t fall off trees or come in an endless supply from your wallet. Kids need to be taught the basics when they are starting to have money of their own and very few elementary schools have a dedicated program to do this.
3. Giving children money for nothing
Christmas and birthdays are obvious exceptions but giving them money without them having to earn it means they don’t learn the value of it. That it doesn’t grow on trees or appear automatically from a hole in the wall. Money is earned by working hard and being smart. It’s one of life’s immutable laws and the sooner they get that ingrained in their heads, the better for their future and your cash flow.
4. Paying children for chores
Kids need to know that everyone pitches in. When it comes to house keeping, chores are part of the deal. When everybody helps, Mom and Dad don’t end up exhausted by having to do it all and kids get the satisfaction from having contributed. However if you pay your child for completing basic chores, like washing the dishes or hanging out the laundry, you undermine the feel good they get from doing it for love.
A better option is to pay them for one-off projects or jobs beyond their regular chores. For instance cleaning the windows, washing the car or mucking out the hen house. Paying them for these helps them appreciate the value of money whilst maintaining the notion that in families you all help out.
5. Making financial decisions for your children
When it comes to your children’s financial choices, it is a mistake to try and micromanage every spending decision they make. Not only will they not learn to think for themselves, they won’t experience the negative consequences of poor choices. Many of life’s most valuable lessons come through trial and error.
Let them make their own choices. Allow the bad decisions to hurt a little and the good decisions to feel good. Giving them the freedom to experience the ups and downs of financial choices helps them understand the value of money and the importance of making smart decisions.
6. Forcing children to save
As a parent you know the importance of saving and it can be tempting to make your children save money whether they want to or not. But we all know the more you demand a child do something, the less they actually want to do it. It’s better to explain the benefits of saving to them (if they are disciplined they can eventually buy what they want), than to force them to do it.
The trick is not to give in and pay for things when they complain they’re not saving fast enough, you’re being mean, you don’t love them etc. That just reinforces that you will always come to the rescue when they don’t have what they want and that money just appears for them without any effort.
7. Thinking children won’t understand financial concepts
A natural concern for many parents is their kids won’t understand more than basic financial concepts like spending and saving. However kids are smarter than you think. They can understand topics like mortgages, real estate, investing and business if you start at a basic level and level up when you know they’ve got it.
Starting early ensures they are familiar and comfortable with these concepts, which means they are more likely to embrace them confidently and successfully as adults. The younger they start learning about these things, the better.
8. Going shopping without your children
Sure, your shopping trips will be less stressful without a bunch of hangers on but without experiencing spending decisions in real life, for the kids it’s all just theory. So, rather than leaving them with your partner the next time you go to the store, take them with you and explain things to them as you go.
Comparing products can help them understand the difference between cost and value. Sharing your shopping budget with them will help them learn how to spend within their means. And even though debit cards and mobile apps offer painless payment, consider using cash and letting them observe the physical exchange of money for goods. This will help them understand that once you spend your money, it’s gone.
9. Not teaching your children about debt and credit cards
Credit card debt has the potential to derail your kid’s long-term financial stability. Without understanding the true cost of debt, your kid may be headed for a bad start to their independence when they turn 18 and get inundated with credit card applications.
They may be lured into getting credit cards and thinking their credit limit means they “have money.” Of course this is not the case. It’s borrowed money and if the repayments are not met, the interest escalates rapidly.
Try lending your child a small amount of money and setting a time frame with regular payments with interest for them to pay you back. Then when they are earning money by doing jobs, and you are paying them, show them the full earned amount in cash and then take off the loan repayment plus interest before giving them what is left.
This will help your child understand that quick access to money requires them to pay it back when they get money and that they will be required to pay back more than they borrowed due to interest.
10. Not talking about your charitable giving
One of the best things we can do as citizens is to be generous and use our money to help others whenever possible. To teach your kids how to be generous, you need to model it for them. Start by talking with them about how it is for others who are less fortunate than them then get them to think how your family can help.
If you decide to contribute financially, show them where the contribution is coming from out of the family budget. It should come out of surplus or be a budgeted item. By role modeling your giving in a financially responsible way, it creates a giving mindset that will nourish their soul as well as help others in need.
Teaching your kids the value of money and helping them develop solid financial habits of their own will pay off when they get older. They are more likely to be financially independent and less likely to come crawling back to you with their tail between their legs when things go wrong.
15 Topics To Cover When Teaching Financial Literacy
I’ve spent a lot of time thinking about financial literacy and putting together an effective program I believe teaches children everything they need to know about personal finance.
I am happy to share what i believe makes a robust financial literacy curriculum. Some of the later topics listed below may be too complex for younger learners as our program is geared specifically for the 10 to 14 age range, although we have had many homeschoolers tell us they have found it to be effective with slightly younger and older children than the 10 to 14 recommended age group.
Earning Earning money gives people more choices in life. Introduce children to ways they can make money and what it means to be paid an hourly rate versus a salary.
Saving Money in a bank account is relatively safe but there is an additional benefit – it can earn interest! Teach your children the importance of saving and the differences between everyday checking accounts and savings accounts and when to use each one.
Interest Earning interest is an easy way that everyone can make money. Introduce the concept of simple and compound interest and explain the benefits of starting to save early.
Career Choice Choosing a career is a very important life choice. Start your children thinking about what they are good at and discuss what is important when choosing a career.
Writing a Resume Preparing a resume is usually the first step towards securing a meaningful job. Children can have fun thinking about their strengths and the things they like about themselves to create a CV.
The job application process Writing a good cover letter is an important part of a job application. As well as learning about the job hunting process it is a good idea for children to practice their reasoning (why they should get the job!).
Pay and Tax It’s great to be paid for doing a job, whether it’s via wages or salary. However, it’s important for children to realize that some of their pay will be paid as income tax. Discuss why income tax is necessary and how it is calculated.
Smart Spending Explore ways children can get the best value when spending their hard earned money. Buying cheap is not always the answer! Discuss the pressure they might experience from peers or advertising to buy things.
Using budgets Budgets are the most powerful tool students have available to control their spending. Teach them how to create a budget and explain what they should do if their expenses are greater than their income.
Banking Your kids will be getting bank accounts soon, if they haven’t got them already. Teach them how banks make money, how money gets in and out of their accounts and how they can keep track of it.
Paying Children are used to paying for things with cash and many have their own bank card. Introduce other ways of making payments that they need to know about.
Borrowing Borrowing puts the borrower into debt but this is okay if the money has been borrowed for a good reason and they have the ability to repay it. Talk through the good and bad reasons for borrowing money as well as how interest works, this will help in teaching money management to children.
Loans There are a number of different loan options if we need to borrow money. Explore the impact that providing loan security has on the interest rate charged.
Loan Repayments Borrowing money can get people into trouble. Show children how to factor loan repayments into a budget and what to do if they can’t afford them.
Rent or Buy Most people would rather buy their own house than rent one. Look at the cost of houses in your area and city with your children then use budgets to help them figure out whether they would be able to afford to buy or rent.
Teach your teen to invest now to set them up for a financially healthy life
Teaching kids about money and how to save is a valuable first step toward learning how to manage money. But it shouldn’t stop there. While savings accounts are a safe bet and an easy concept to grasp, the real earning power comes from investing their hard-earned cash.
That’s because kids possess a very powerful gift: time. The earlier your child starts investing his or her money, the greater the rewards are later. That’s due to the magic of compounding, wherein the gains continue to grow, because each year money is made from the previous year’s profits.
5 ways to introduce investing to your teen
1. Explore investing as a family to teach the keys to long-term wealth. Work with kids to pick stocks of companies whose products and services they understand and use. Encourage them to research the companies to understand what they do. Together, look at their performance now and discuss how it might change in the future.
2. Teach them thatinvesting is about the long term. Encourage kids to invest only money that they don’t need in the short term, because most successful investors take a “buy and hold” approach to investing. Share stories and books about successful long-term investors like Warren Buffett and Peter Lynch.
3. Start small and learn from mistakes. Show kids the power of investing with a small sum of money so they can make mistakes and learn from them without it costing a large amount. Some investing resources allow you to invest in fractional shares, lowering the risk and barrier to entry
4. Invest in something you care about. Encourage kids to invest their money in something they care about, as they will be more interested in following their investments and watching their money grow. You can also explain that many people invest in index ETFs and “index mutual funds – which invest in all of the companies included in a specific index, like the S&P 500.
5. Make it a habit. When kids earn or receive money — whether from gifts, allowance or chores — encourage them to invest a portion of it, because it will help them build the healthy financial habit of saving and investing.
“We need to change the mindset of this next generation. Student loan debt is at an all time high, consumer debt is at an all-time high, national debt is at an all-time high. I think we really need to change the way we do this with the next generation or we’re in big trouble.
Sheehan agrees: “Raising a financially smart generation can lead to a healthier generation — one with less financial stressors — which allows everyone to reach their full potential. Imagine what that world would be like.”
4 WAYS TO HELP YOUR TEENAGED CHILDREN TO MANAGE MONEY
Shaping a child’s financial behavior and attitude towards money depends on their parents. Most teenagers look up to their mom and dad as an example when it comes to managing finances. Hence, as a parent, it is important to set great standards and teach money management to children. We would like to share a few tips as they might be of help:-
Share responsibilities
Share your responsibilities with your child. You can assign at least 1 household chore to your child, for example, she/he could be required to bring milk and eggs every day for everyone. If you link small monetary incentives with it, teenagers will understand the value of earning their pocket money as against just demanding it.
If there could be a nice user interface like a mobile app that can show them what they have earned and how well they have managed their expenses, it would give teenagers some of the finest lessons in money management.
Create a budget
Assign a monthly budget to your child to help them to manage their finances for that month. For example, if you set a budget for your child to manage travel and project expenses within a budget of some dollars every month, it would get them to think, plan and save as well as learn the art of money management. Using the Create Budget feature, you can accomplish this for your children in 5 minutes.
Empower with guide rails
Give your child a monthly allowance all at once. But what if she/he spends the entire money in a day or in one transaction? It is here that you can leverage technology to empower with guiderails.
You can start giving the monthly pocket money and set limits per transaction, per day etc. This will ensure that your child doesn’t spend excess money in a day while also having the freedom to take their money decisions independently.
Money, Honey Teaching Kids the Power of Financial Literacy
There was a time when financial literacy for children was pretty simple. Counting and saving pennies in a piggy bank, which could be raided for an occasional treat, went a long way toward teaching kids what they needed to know about managing money.
Today, finances are not nearly so concrete. They’re characterized by highly abstract notions like credit and interest, and by transactions that occur invisibly and magically over the Internet. Teaching money management to children is more complex, yet, perhaps more critical than ever before.
On budgeting:
Beyond identifying types of money and their associated value, even the youngest children (beginning at age 3) can learn to budget. Provide jars labeled “Save,” “Spend” and “Share” and have your child divide his money among the three. This allows him to think ahead about how to spend and promotes the habit of setting funds aside for future uses (therefore teaching deferred gratification), rather than spending it all right away. When he gets older, have him use envelopes or bank accounts to divvy up his loot.
On choosing:
Shopping trips are great times to teach children about making choices. Help your elementary school-aged child understand that if she spends all her money on a doll, she won’t be able to buy an arts and crafts kit, too. Are there two things she can buy for the same amount she would have spent on one? (This is a great opportunity to sneak in some math and analytical thinking, close cousins to financial literacy.) It’s important to resist the urge to buy additional things your child wants but can’t “afford.” Otherwise, she won’t experience what it feels like to make choices.
Savings and interest:
Older children can and should begin to tackle concepts that are more mathematically sophisticated. Plug in some figures on the Investment Calculator tool, which can be found at Investment.gov, to see how compound interest and regular contributions “grow” a savings account over time. The exercise may inspire your child to save early and contribute often. Having a specific goal to save toward, like a new skateboard, car or college fund, can also be motivating.
Credit cards and interest:
Navigating the world of credit card and other debt can be more challenging but is also incredibly important. As plastic and electronic devices have largely replaced using coins, bills or checks, spending may not even seem very real to your child. But the impact of accumulating debt that outpaces his ability to pay can quickly become a huge burden. According to one source, the average American household’s credit card debt last year was $5,700, but the nearly 40 percent of households who carried debt month-to-month owed more than $16,000. Ensure your older child understands how credit card companies charge interest and how it compounds when balances are not fully paid each month. A pair of shoes that cost $50 could cost $200 or more by the time the “principal” (or original charge) and accumulated interest is paid.
Other types of borrowing:
At the same time, borrowing to finance certain big-ticket items like higher education or a home may be unavoidable. So, while children should be wary of debt, they must also know how to borrow responsibly. Talk to your child about how interest works on a loan as opposed to the “revolving” debt of a credit card. Look at specific loan scenarios, including total time to pay off the loan, projected monthly payment and how much total interest would be paid over the life of the loan. Armed with information, your child may be more motivated to defer or save up for bigger purchases. When your child does borrow, encourage him to shop around for the best available terms. Studentaid.gov contains a lot of good information about student borrowing and other types of financial assistance.
At the end of the day, it may be most important to remind children that, in small and large matters alike, what may seem like a “need” may actually be a “want,” and that “wants” can be deferred or perhaps satisfied through less expensive alternatives. Once they become adept at knowing the difference, children and teens are in an infinitely better position to make good financial choices and to have more funds available for what is most important.
Financial Literacy and Kids: What to Teach Kids about Money and Saving
As parents, you teach your kids thousands of lessons over their childhoods. You teach them to spell their names, to eat their vegetables and not to talk to most strangers. You teach them that it’s important to say you’re sorry when you’re wrong. And it’s up to you to teach kids about money—how to earn it, how to save it, and how to spend it. Studies show that parents—not the media and not peers—carry the most weight when it comes to teaching kids about money. In a recent study of millennials by Bank of America and USA Today, 58% of those interviewed cited their parents’ advice or example as most influential in how they handle their own finances.
Kids will learn plenty about money just by watching how you use your credit cards, but they won’t necessarily learn the right lessons. I recommend taking a much more proactive approach to encouraging financial literacy in your kids. Teaching them about responsible money management is one of the greatest gifts a parent can give their child. Every family is different, so naturally, what you decide to teach your kids will depend on your own experiences. These are just some of the key lessons I suggest you teach your kids about money.
Lessons to Teach Preschoolers About Money
Young children need to master the concepts of saving and earning, and understand where money comes from, to build a strong foundation of financial literacy. Kids who are between 3 and 6 should learn that:
• Money is finite and has to be earned.
Little kids see a parent take cash out of an ATM and believe there’s an infinite supply where that came from. Even once they’ve grasped the concept behind a bank account and debit card, kids may not make the connection between work and money. Parents can instill this lesson when talking to their kids about their jobs; “I have to do my work on the computer in my office because it’s how I earn money to pay for what we need.” Offering a weekly allowance in exchange for doing certain chores is a great way to give kids real-world experience with earning money for work. You can even start teaching the value of the money they earn by making them responsible for certain items in their life. It will show that we have to make decisions about what we really want.
• Want and need are different things.
This lesson goes hand-in-hand with teaching kids that money is finite. Using cash while grocery shopping with kids is one simple way to illustrate the difference between want and need. Show kids how much cash you have and talk about all the things you need to buy, then track the prices of everything that goes into the cart. When kids ask for special snacks or toys, talk about how buying one of those extras would mean going without something that you need.
• It’s smart to save your money.
Setting a kid up with a clear piggy bank is one simple way to reinforce the lesson that saving at least some of your money is important. Help a child set a savings goal, then celebrate together every time they add more money to the piggy bank and get a little closer to that goal. You can also start talking about how money that you save in a bank account actually grows because of interest.
Lessons to Teach School-age Kids About Money
Once they’ve mastered the basics of earning and saving, kids are ready to learn about money and consequences. Kids who are elementary- and middle-school age should learn that:
• Making and sticking to a budget is important for everyone.
Parents can teach budgeting by talking with kids about how they’d like to divide up any money they earn. How much will go into savings, and how much will be free for spending? Simple budgeting apps will help young kids track their money in a visually engaging way.
• Money grows over time. On
e of the most valuable lessons you can teach kids about money is that it needs time to grow. Talk about the ways that you have invested your own money. Explain how interest is basically free money that you can earn by being patient and letting your money accumulate instead of spending it. A concept like compound interest can be tough to illustrate to kids. There are plenty of resources online, including simple YouTube videos, that explain compound interest in kid-friendly terms.
Lessons to Teach Teens and Young Adults About Money
Once a teen is old enough to work, it’s time to pivot to lessons that will support their long term financial goals. High schoolers and young adults can learn that:
• Not all financial accounts are created equal.
What’s the difference between a savings and checking account? What’s a 529 plan—and does your child have one? What kinds of accounts do people use to save money for retirement? Once they start working, young adults should understand these account options.
• Credit has pros and cons.
A lot of young people have gotten the message that using credit cards can get them into trouble if they spend unwisely. This is a lesson to reinforce to your kids—but it’s equally important to stress that credit can also be a powerful tool. The takeaway: Compare credit cards to find low interest rates, and only spend with credit cards if you can afford to pay off the balance each month.
• Tax planning starts when work starts.
Do you remember the excitement of opening your first paycheck, followed by the shock at how much had been taken out? Teens should know about FICA, and the difference between net and gross pay, before they collect that first check. Talk about tax brackets and how to comply with the IRS at tax time.
• Money mistakes can take years to undo.
If you’ve learned a money mistake the hard way, I know that you want to prevent your kids from learning those same tough lessons. Some parents may want to share their own stories of credit card debt or bankruptcy to illustrate the lasting effects of poor money management. Talk about ways in which their credit score and credit report will be relevant throughout their life. For young adults considering taking out student loans, talk about how to weigh earning potential against future loan debt to make sure kids are thinking realistically about what they’re taking on.
For us, 2020 was a year of learning for both the parents and the children in our household about what allowance means, how it works, and what kinds of money lessons our children are learning. In order to minimize sibling rivalry, we gave his younger sister a single-slot piggy bank.
We decided to try a weekly allowance for each child, giving them each two quarters for each year of age they were. For the older son, we made a requirement that at least one quarter of his allowance had to go into each slot. The allowance was not tied directly to chores, but we occasionally gave them both opportunities to earn a few extra quarters through helping with chores that were above and beyond the usual household expectations for them.
What did we learn after a year of this? Did our children learn anything about money?
The younger one is a saver!
Each week, our daughter would put her quarters into her bank and then put it back in the cabinet. We allowed her to decide when and how to spend the money inside, but almost without fail, she never wanted to spend it on anything. She likes that her bank is getting heavy. She has only used her allowance twice, both times on individual large toys, and neither time did it empty her bank. She doesn’t have any specific savings goals for the future at this point and seems to mostly enjoy having lots of quarters in her heavy bank, even though she understands she can use them for things that she wants.
The older one often lost focus on savings goals.
Our son has no problem with the actual saving process. His problem is that he gets heavily into saving for specific goals, but by the time his savings starts to approach a goal, his interests have changed and he ends up having a new target for his savings. Thus, when he actually reaches a goal, it’s usually for an item that he’s just recently decided on.
He typically does not use his “spend” slot for small things, as he prefers to be patient and use it as part of his “savings” slot. He has expressed a desire to give the money in his “donate” slot to Jump for Joel, but that hasn’t occurred yet. The “invest” slot is going to eventually turn into a savings account at our local bank, perhaps around his sixth birthday.
Not using the allowance as a form of punishment or leverage has worked well.
We want to establish that the basic things we expect from them around the house, like clearing the table after meals, basic politeness, and so on, are not tied to any form of compensation. Such basic behavior is expected. Their allowance is merely a tool to teach simple money management. Our children seem to respond better when there are not bribes involved – bribery works well the first time, but after that, would you really expect them to do that thing you want them to do without compensation?
The children anticipate allowance day.
Typically, allowances are doled out on a Sunday, and both of our children anticipate it and request it. They’ll often ask on Saturday if that day is “allowance day” and an allowance request is usually out there by noon on Sunday. It doesn’t seem to be a money-grabbing thing; I think they just have fun putting the coins in their bank and then lifting them up to feel how heavy they are.
Our oldest child is starting to understand prices and what they mean.
This not only builds on his allowance, but upon many of our discussions when shopping. He now understands that things have different prices and different costs. You have to spend more of yourself in order to acquire a more expensive item. Spend more of yourself? When you spend money, you’re really spending time and energy. In my son’s case, it’s time.
He doesn’t always ask how much it will cost; he often asks how many weeks he will have to save to pay for the item. He already has a basic understanding that money represents your invested time and effort. Money is simply a piece of paper that says I’ve invested a certain amount of time and energy in this. Deeply understanding that changes your relationship with money. It makes the money less abstract than before and much more real. It makes debt more frightening and good choices more appealing. Invested money, which earns interest, seems almost miraculous.
These are exactly the lessons we want them to learn from this allowance experiment.
These are small, early steps, but they’re all signs that they’re heading down the right road, one that will put them in a place where they won’t repeat the money mistakes of their father. You can help your children in learning finances from the children’s book series about money which will surely help them in gaining financial freedom and learning life lessons.
Tim Connolly 