6 Choices That Will Impact Your Teen’s Future Income
A critical aspect of teaching teens about money that’s often overlooked is helping them set realistic expectations about their future lifestyle. It can be hard to understand that the lifestyle your family enjoys now has taken time and effort to accumulate.
As you make decisions together about college, make sure your teen is aware of the nexus between their study and career choices, earnings potential, and future lifestyle. The decisions they make now may have far-reaching effects on their finances. Here are 6 choices that’ll impact your teen’s future income.
Where Your Teen Studies
Studies remain inconclusive, but it appears that there’s a potential earnings payoff for those attending an elite college, a payoff that extends beyond initial earnings [3].
However, there is a caveat, based on socioeconomic factors: More Ivy League students come from wealthy families, whose networks of influence may be better positioned to assure a good career start for their graduating students.
Bear in mind the costs of an elite education, which should be carefully considered, relative to your own finances, as well as any potential benefit to your teen. Scholarships and financial aid packages may help ease the potential financial burden of an Ivy League education.
If you’re concerned about the costs of undergraduate tuition, consider:
Graduate Studies: If your child plans to pursue a post-graduate degree, the status of that college or university might have more bearing upon future income, possibly reducing pressure to pay for an elite undergraduate education.
Reducing College Costs: Not all four years of an undergraduate education need to occur at an elite university to achieve their diploma. Many students start at state or community college, or take cheaper supplemental summer classes, to help reduce costs.
What Your Teen Studies
Possibly the single most predictive factor in your student’s potential earnings and future lifestyle is what major they elect.
A professional degree is most lucrative in terms of both starting salary and future career earnings. Conversely, a ‘soft major’ e.g., Psychology or English, means a lower earning bracket – although there is a slight bump if it’s from an elite institution.
Something that often goes unnoticed is that unemployment rates also vary by major.
Despite women’s achievements, the Economic Policy Institute notes that women still receive lower starting compensation than men – even immediately out of college, when study and work experiences are most comparable.
What GPA Your Teen Achieves
Most studies indicate a connection between grade point average (GPA) and starting income.
Some employers also use GPAs to limit the applicant pool, so a lower GPA might restrict the type of jobs your teen can apply for.
A GPA isn’t just a quantifiable data point for hiring managers. It also connotes learning ability, tenacity, focus, and other qualities that employers value – and are prepared to pay for. The higher your teen’s starting salary, the more they’ll probably earn across their career, with the highest salary growth occurring during the first decade.
What Job Experience Your Teen Accrues
Employers are placing an increased emphasis on experience gained from internships, summer jobs, and part-time employment.
While statistical evidence remains limited as to how on-the-job experience may relate to starting salary, any real-life experience your teen acquires during college will likely make job hunting easier, may increase any initial compensation offer, and at the least, can help supplement their college costs through paid earnings.
Furthermore, the connections your teen makes while working at an internship, temporary, or part-time job, form the basis of their professional network. Networking can help facilitate their job search in the future.
A recent Charles Schwab survey evaluated the financial beliefs and behaviors of the next generation of Americans: young adults aged 16-25. The results proved enlightening. Overall, the group was optimistic about their future finances.
However, the survey identified a number of potential obstacles to their financial success. Below, we highlight some of the survey’s findings, and offer suggestions on how to help your kids, tweens, and teens develop good money habits to empower their future financial freedom.
Encourage A Positive Attitude Towards Money
76% of young adults surveyed believe their future will be financially better than that of their parents.
The young adults interviewed are old enough to remember the Great Recession of the 2000s. Indeed, 81% of them have witnessed some form of parental financial hardship. Nonetheless, the group was generally optimistic about their own financial future.
A positive attitude towards money is an essential foundation for financial success. Understand how your own money relationship influences your kids’ outlook on finances, and always talk about money as a positive resource.
Discourage Unrealistic Expectations
53% of those questioned believe their parents will leave them an inheritance.
Unless your family’s ultra-wealthy, relying on an inheritance is a dangerous financial strategy. Parents and grandparents are living longer and pursuing happy, healthy lifestyles well into retirement, meaning that assets may well be spent down later in life.
Discuss family finances openly and honestly, including legacy plans. Encourage future wealth through a disciplined approach to saving. If your family’s well off, beware of the ‘Wealth Effect’ and help your kids develop realistic expectations about their future lifestyle.
Focus On Financial Literacy
9 out of 10 young adults surveyed said they learned about money from their parents.
True wealth education begins at home. Kids combines developmental milestones with fun financial activities and age-appropriate advice, creating an easy-to-follow financial literacy curriculum for ages 3-4, 5-7, 8-10, 11-13, 14-16 and 17-18.
Be A Good Money Role Model
69% of respondents think their parents are good financial role models, and 39% consider them the most trusted source of financial advice.
Children formulate their own perspective on money, based on your financial behavior. Be a good role model by managing your money well:
Use a budget to balance saving and spending, avoiding extremes like overspending.
Base money decisions in reason, not stress or emotion.
If you’re half of a couple, stay engaged in family finances.
If you’re separated or divorced, try to maintain a unified parental approach to money.
Share your own financial experiences – good and bad.
Develop A Budget
85% of those interviewed think saving money is essential for financial independence, yet 49% have less than $250 saved.
The key to financial independence is managing cash flow, enabling saving towards short- and longer term financial goals.
Help your kids develop a budget that balances income, saving and spending, needs and wants. Paying your kids an allowance, assigning age-appropriate chores, and layering on purchasing responsibilities are all key to them learning successful money management.
Teach Your Kids About Debt
51% of respondents have some type of debt, averaging $8,000.
43% of those interviewed have borrowed money from their parents during the last year, and 25% have borrowed from friends. Almost a third has skipped meals due to a lack of money.
Debt is an obstacle towards future financial success. While it may seem counter-intuitive, it’s better to teach your kids about debt during childhood, when the consequences are less significant.
Teaching kids about money and financial independence is also important for your own financial security. If you’re always bailing your kids out, you may be risking your own wealth and wellbeing.
Talk About Retirement
The majority of those surveyed expect to retire at age 60.
Even by today’s standards, 60 is considered early retirement. This requires intensive saving efforts to accomplish. Furthermore, by the time this generation reaches retirement age, Social Security benefits may be a thing of the past.
It can be hard for a young adult to visualize retirement and prioritize retirement savings. Yet the early career years are critical for retirement success, with strategies like funding a Roth IRA or Roth 401(k), compounding interest, avoiding lifestyle creep, etc. Encourage your kids to focus on retirement savings now, so that they can enjoy life later on.
You expect your child to learn about math, reading and science at school, but what about personal finance? Dealing with money is an important part of their everyday lives. It affects the choices they have and the decisions they make yet we’re neglecting to teach our kids how to grow and manage their money.
Most of us had to learn lessons about money the hard way but it doesn’t have to be that way for your child.
Here are six ways you can start teaching your kids how to be confident with money today.
1. Pay them an allowance
A good way to start teaching kids about money is with a weekly allowance. Letting your kids learn how money works for themselves is a powerful tool to practice money management. An allowance lets them test the principles of budgeting, saving, impulse control, and delayed gratification before they go out in the real world.
How much you pay them depends on your financial means and what you expect them to be financially responsible for. An allowance should be treated like a paycheck rather than a gift – something that is earned, whether it is for chores or academic achievement, it should be clearly laid out and discussed. It should also be clear to you kids what they’re expected to buy with their allowance and what you will still pay for.
Once they’ve used up their allowance it’s important to not give your child unlimited funds for discretionary spending. If you do this, they may develop a habit of relying on additional funding sources when they want something they cannot afford which will lead them into debt and high-interest credit cards as adults.
The idea here is to allow them to experiment with money of their own by allowing them to make their own financial decisions and to see the consequences of those decisions.
2. Teach them about saving, interest and banking
Encourage your kids to put a fixed amount into a youth Savings Account so they learn the basics of banking and earning interest.
Explain the difference between Checking accounts and Savings accounts and what interest is.
For younger kids it can be as simple as agreeing a savings plan with your child and what they’d like to save up for. Once they’ve saved enough money to meet their goal, give them the chance to decide if they’d like to use it or keep saving for something more meaningful or valuable that they want.
For kids 10 years or older you can introduce simple and compound interest and explain the benefit of starting to save early.
Get your child to search banks online to discover what interest they are paying on Checking and regular Savings accounts.
See if they can find a savings calculator online to see how much they can achieve by saving and how quickly they can reach their goals.
Tell your child they have just been given $1,000 by their grandmother on the condition they bank it for one year. Get them to research which bank which will give them the most money by the end of the year based on interest rates on long term Savings accounts.
For older teens, you can use the same exercises to get them explore the cost of buying a house. Get them to search on a real estate website and select a house. Ask them to calculate how much is required for a deposit and work out how long it will take them to save this amount using an online savings calculator.
Then use an online mortgage calculator to help them work out the repayments required for the balance of the purchase price. Get them to explore how changing the loan amount, interest rate, and term can affect the repayments required.
3. Get them thinking about smart spending
When your child has their own hard-earned money to spend, you’ll want to teach them ways they can get the best value for their money. Here are some activities to get them thinking:
Get your child to search online for stores having sales
Pick a product and ask your child which shops they would go to to compare prices.
Ask them what products they have purchased online? How easy was it? Are they satisfied with what they ordered?
Ask if they have ever had a bad experience shopping online and why.
Discuss the meaning of the quote “The bitterness of poor quality remains long after the sweetness of low cost”.
Discuss things your child has purchased second hand. Did they work or last?
Discuss peer pressure. What are some of the things your child has felt pressured to do or buy or own to fit in?
Discuss advertising. Has your child seen an advertisement and thought to themselves “I’ve just got to have that!”?
4. Teach them how to budget
Budgets are one of the most powerful tools you can give your child to learn how to control their spending. Start by explaining what expenses and income are. Then discuss the difference between needs (e.g electricity, food, insurance) and wants (e.g chuck steak vs fillet steak, holidaying in a camping ground vs staying in a hotel).
If your child is older you can ask them to create a monthly budget for the family using an online budgeting tool so that they get an understanding of living expenses, disposable income and the difference between a deficit and a surplus.
For younger children you can simplify the exercise to creating a budget for a family holiday or if they’re going to a birthday party, give them a budget they need to stay within to shop for a gift. This will teach them about comparison shopping.
5. Get comfortable talking about money
Talking comfortably about finances is also an important part of helping your kids develop a healthy relationship with money. Instead of approaching money conversations as serious dialogues, make it a regular part of your day-to-day interactions. You can even turn lessons into money games for kids.
Here are some ways to start bringing money into your regular conversations.
If you’re talking about a profession, see who can guess closest to the median salary.
If you’re at a restaurant, let the kids guess how much each dish costs. Compare that amount against what they have in their bank accounts to give them some perspective.
Have a conversation about why some things cost more money than others. Is it the same product with different branding? Or does it have more features or is it of higher quality to justify the higher price?
When you’re paying bills, take the opportunity to explain fixed household expenses versus discretionary ones.
Include your children in financial decisions. For example, at the supermarket you can look at the brochure together to see what’s on special before deciding what to make for dinner. Or you can ask them to make budget-based decisions, like they can have one expensive clothing item or two cheaper items because you have only budgeted a specific amount for clothes.
These activities will get your kids to start thinking about the role of money in everyday life.
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.
Five- and 6-year-olds are starting to develop the cognitive skills necessary to understand basic monetary concepts, such as identifying coins, figuring out how to count change, and matching small amounts of money to items they want to buy.
Aside from acquainting kids with the basics of economics, lessons of money management for children have other benefits. “Money is a stand-in for many of the values we want to teach our children,” says Janet Bodnar, author of Dollars & Sense for Kids.
“If youngsters learn how to spend wisely and delay gratification, they will develop patience and planning skills in other aspects of their lives.”
Personal Finance 101
To increase your child’s money smarts, try these strategies:
Explain how money works. Your child needs to know there’s not a little printing press inside every ATM. Explain that the bank is like a big piggy bank where you keep your money until you’re ready to use it. Tell her that when you spend what’s in your account, it’s gone until you get paid by your boss and can put more in. She should understand that you can’t buy whatever you want and that you need to make careful choices about how you spend your money.
Build your child’s money skills. Reinforce lessons he’s learning at school by making a chart that illustrates basic money equivalents. Post it on the refrigerator or in your child’s room. Help him practice exchanging pennies for nickels and dimes and quarters for dollars. Play store by putting price tags on items around the house: 50? for a pencil, 75? for a rubber ball, $2 for a Hot Wheels car. Help your child figure out the cost to “buy” each one. Then hand him two one-dollar bills and explain that he has enough for the pencil and the ball or just the car, but not all three. Let him choose.
Give your child a small allowance. It should be enough for her to buy minor items, such as trading cards, hair clips, or ice-cream bars. The next time you go shopping, tell your child to bring her money if she thinks she might want to purchase something. What if your child has blown her wad and still begs for ice cream? Tell her she’ll have to wait until the next allowance day, Bodnar recommends. “If you give in, you’ve defeated the purpose.
“If your child wants something big, such as a new hardcover book or a toy, help her figure out how much she needs to save each week in order to buy it. Make sure she has a clear plastic bank so she can watch her money grow. However, Dr. Blackburn advises teaching kids to do more with their money than spend it on themselves. She suggests encouraging them to donate part of their allowance to charity.The majority of experts agree that a child’s allowance should not be tied to household chores. “Children should help out around the house because they are part of the family, not because they are being paid,” says Irene Leech, Ph.D., an associate professor and extension specialist in consumer education at Virginia Tech University, in Blacksburg.
Let your child do some spending. When your child wants to make a purchase, help her count out the correct amount. Have her hand the money to the cashier and wait for her change. If your child wants to blow $3 on vending-machine toys instead of waiting to combine it with next week’s allowance to buy a Beanie Baby, point out the trade-off but leave the final decision to her. Tracy Barta, of Zionville, Indiana, lets her sons, 9, 7, and 4, spend their allowance as they wish. “But I have veto power if I think an item is inappropriate or too sticky to eat in the car!” she says.
Offer ways to earn extra cash. Kids need to learn that they can increase the amount of money they have but that they have to work for it. Make a list of jobs your child can do above and beyond her routine chores, such as raking leaves or polishing silver, along with the amount you’re willing to pay for the job. Paul Tedder, of Nashua, New Hampshire, says that when his daughter, Meghan, 6, wants to buy something specific, she offers to dust the furniture or wash the car for a fee. “What’s scary is when she wants to give me one of her three-dollar haircuts!” Tedder quips.
Shortly after his sixth birthday, I brought my son, Nakoa, to the toy store, a $15 gift card clutched in his hot little hand. As always, we headed straight for the trucks and trains aisle. There, an endcap display stopped him in his tracks. A large, shiny construction-themed train set beckoned. He threw his arms around the box.
“This. THIS!” he crowed, rapturous.
I gently pointed out the price tag. “It’s $69.95, baby. You have only $15.” I helped him tuck it back on the shelf. “It would take a very long time to save up that much money.”
“I could do it. I could save. I can be patient,” he nodded, with a final hug of the box. “I want this.”
So began a flurry of money-scheming. Nakoa scoured the sofa and car for change. He brought me endless Diet Cokes, each five-cent deposit bringing him closer to his dream. He begged for chores until the lower three-and- a-half feet of our house sparkled. Weeks turned into months. Then, with an influx of cash from Grandma for a great report card, it was finally time.
Back at the store, he skipped ahead. As we rounded the aisle, I was gut-kicked by the sight of a Lego-filled endcap. The sets were gone. They were all gone. We flew through the stages of grief in a blur, as a store manager broke the news that the toy was not merely sold out, but discontinued. There was nothing to be done. The train had left the station.
Too devastated even to think about other toys, Nakoa piped up as we left, “I wish you could just buy things, then pay the money back later.”
A credit system. It was so obvious. Why not teach him the concept early? As a kid, I’d never learned about finances. As a teen, I racked up huge credit-card debt before I’d ever heard of a credit score.
We sat at the kitchen table, and I explained how credit worked. I told him how, when I didn’t have the cash to buy a car, the bank lent me money, because I was a safe risk. In this way you can focus on teachingfinancial education to kids.
Nakoa had been responsible with money and amassed decent savings through hard work. So, I said, he was ready to get a little credit, too. I’d start him at a score of 5, the highest in our new system. If he maintained a 4 or 5, and saw something important to him he couldn’t afford, I would extend him credit and he could pay me back.
If he continued to be responsible and repay me promptly, he would stay at 5. But if he started pestering me for things, his score would go down?as a real credit score would if you keep requesting higher spending limits.
Nakoa was thrilled: the objects of his desire were now within reach. He just had to remember that all his actions affected his score. If we had behavior issues, I might ping his rating down a half-point, I explained. If he owed me money but depleted his assets to buy a slushy, it might get lowered again. If he wanted something very pricey, he needed to push his score as high as he could before asking.
Nakoa is now 11 years old. Though trains were long ago replaced by the latest Nike soccer cleats, we still avoid arguments in shops. Sure, clerks sometimes raise an eyebrow when they overhear him say, “I can get this, right? My credit score is 4.5.” But that’s OK. I feel I’ve helped my son get a head start on money smarts.
Everyday Activities to Teach Financial Literacy to Kids
At some point in their adult lives, often when they’re first starting out, many parents have had to learn the harsh consequences of poor money management. It could be when you fell behind on rent payments or got in over your head with credit card debt. If you want your kids to avoid those same pitfalls, then you need to start teaching kids about money sooner rather than later.
Research, including influential work by David Whitebread and Sue Bingham of the University of Cambridge, suggests that many of our financial habits are set by age 7. If good habits aren’t formed early, it becomes harder and harder to point your offspring in the right direction.
KEY TAKEAWAYS
Having kids earn their allowance through household chores can help them build the self-reliance they’ll need later in life.
Opening a savings account or kid-friendly debit card teaches the value of saving and provides an introduction to the banking system.
Allowing your kids to observe budgeting discussions can help them learn how to spend responsibly and achieve cooperative solutions.
Make Them Earn Their Allowance
Regardless of their age, one of the most important lessons you can instill in kids is that money is a finite resource. When they have to work for their money—as you likely do—they’ll learn to use it more carefully.
A lot of parents are in the habit of supplying their kids with a weekly allowance, which in itself can help teach budgeting skills. Even better would be making them earn that money by doing chores. Drawing the mental connection between income and personal effort is something that will pay huge dividends when they grow up and fly the coop.
These days, you don’t need a big bundle of cash in your wallet to compensate them for the odd jobs they perform around the house. Apps such as BusyKidlet you assign a dollar amount to each task, which adds to their allowance total.
Encourage Part-Time Gigs
High school can be a busy time for adolescents, with homework and extracurricular activities eating up a substantial part of their week. Still, if they can spare just a few hours to work at a coffee shop or retailer, they’ll probably be better for it. For one thing, they’ll be less inclined to blow their cash on frivolous things when they have to put in some serious work to get it.
You don’t need to wait until they’re old enough for formal employment. You may find that your middle schooler or early high schooler can earn some extra bucks by mowing lawns or walking the neighbor’s dog. Websites such as Nextdoor and even the newsletter from your homeowners’ association can be effective ways to connect with local residents in need of a little help.4
At the point that they start earning an actual paycheck, you can also help them open a Roth IRA with some of their earnings. If you can, consider helping out with some matching money. That’s another life lesson that you can help them learn early. And it’s a good chance to introduce the concept of the time value of money.
Have Them Contribute to Purchases
Nearly every parent knows what it’s like to take their kids to a store and be inundated with requests for various toys or video games. Perhaps that shouldn’t be a surprise. Younger kids, in particular, don’t yet understand that there’s only so much money you have each month to put down on discretionary purchases.
One way to get the point across is to make them contribute toward these nonessential items. If it’s not their birthday or Christmas, tell them that they have to pay half the cost for a new Lego set or an American Girl accessory.
Your kids will get a better sense of what things actually cost, which is important. They’ll also learn that they have to save up their allowance to make bigger purchases and that they have to prioritize, just as you do.
Make It a Game
Who said learning about finances had to be boring? Even board games can help kids learn the importance of thriftiness.
Pay Day is among the best for teaching kids valuable money management skills. With the next paycheck a month away, players have to make their money last. They can purchase items they think will make them a profit and even take out loans, but getting in over one’s head can create problems, especially when there are other bills to pay. Sound familiar?
Even Monopoly can yield some pretty important lessons, with participants choosing which properties or buying strategies will yield the biggest payoffs and measuring risk versus reward with every move they make.
Open a Bank Account
The venerable piggy bank is a useful savings vehicle for younger children, but when they hit elementary school, consider opening a kids account at an actual bank. It’s a good way to instill the importance of gradually building up their balance, and it gives them an introduction to the banking industry.
A more modern approach is to get your preteen a kid-friendly debit card, such as the ones that Greenlight and GoHenry offer. Kids can earn money through chores or an allowance and then use the cards to make purchases online or at a store.
They’ll soon realize just how quickly their account balance dwindles when they overdo it. Both products put an emphasis on transparency, giving parents the ability to control where kids can use their card and sending notifications after each purchase.
Get Them Started on Stocks
One of the keys to long-term financial health is knowing how to invest wisely in stocks and bonds. If your kids can learn some of those tools well before they start their first full-time job, so much the better.
One way to do it is to open a small custodial account at a brokerage for which they get to help direct the investments. There’s nothing like firsthand experience to teach them about the volatility of different investments and the need for a long-term outlook. Eventually, those assets will fall under their control when they reach the age of majority.
Conveniently, apps such as the above-mentioned BusyKid let children purchase shares of companies, such as Disney and Netflix, right from their bank account, making it easy to become a participant in the stock market.
Have Honest Conversations About Money
Perhaps the most important thing you can do to boost your child’s financial literacy is to be open and honest about your family’s finances. Parents often worry that being too candid will only lead to worry, especially if they are going through a job loss or other stressors.
The reality is that somewhere down the line, your kids will face their own hardships. They’ll be immeasurably better equipped to handle them if they know how to respond. That doesn’t mean you need to share your bank statements, but you might find it helpful to talk about the need to stick with your budget and cut back on certain nonessentials during lean times.
Kids tend to be a lot more perceptive than parents realize. If they see you making prudent decisions, then they’re likely to imitate those behaviors later in life.
The Bottom Line
Good money habits don’t form out of thin air—they have to be learned. By starting when your kids are still small, they’ll be better equipped to manage their finances in adulthood, when there’s a lot more at stake.
Financial responsibility may not top the list of unmentionables for conversations with your teenagers, but it certainly may be one of the most important.
Today’s marketplace provides a wealth of alluring financial “opportunities,” many of which may lead the adolescent mind down unsavory paths with catastrophic consequences. Easy credit. The latest (and most expensive) in fashion. The finest and swiftest in high-tech gadgetry. And, of course, the inevitable lure of the automobile.
Good advice, taken to heart, may help steer your teenagers away from the youthful transgressions that have plagued countless generations past.
Before your teenager (or young adult) takes to the open road, here are four lessons about financial education for kids that may help keep them on the straight and narrow:
1. Credit and debit cards: Handled incorrectly or irresponsibly, these plastic cards can lead your children or grandchildren into some hot water. One in four students leaving college has more than $5,000 in debt. One in 10 have more than $10,000 in debt.
College students are hot property for eager credit card companies. Teach your teenagers how to use both credit and debit cards and hold them responsible for how they’re used.
2. Following a budget: It’s never too late to teach children about developing and adhering to budgets. Budgets help foster financial discipline and provide an important lesson on the value of money. Start by having your teenagers write down their expected income, expenses, and savings.
Make sure they follow their budgets. Focusing on creating a personal budget early in life will create a very beneficial lifelong habit.
3. Establishing a savings account: Saving money can provide a few surprising and delightful benefits. Stashing away just $5 a week may sound boring, but once your teenager gets in the habit of saving, the easier it gets.
Saving money helps develop discipline and reinforces the value of money. Encourage your teenagers to save early and often.
4. Automatically save every month. Modern banking technology makes saving money even easier. Teenage life may be filled with distractions, sending earnest adolescents off into financial traps. But understanding and utilizing sound financial tools may help alleviate some of the heartache.
Automated savings—through bill pay or regular money transfers to bank savings accounts—can make it feel like another weekly or monthly expense. Saving money can become an ingrained habit.
9 Important Money Skills All Parents Should Teach Their Teenagers
Money Skills For Teenagers
One of the ways young adults get into trouble these days is with their finances. Schools are woefully inept at teaching personal financial planning, and most parents also don’t have a clue these days.
If I had to bet, most people are living paycheck to paycheck today, so it’s harder to think long term. But, think long term you must if you want to focus on money management for children.
Here are 9 important money skills all parents should teach their teenagers.
1. Let your teenager get a job
A lot of parents are afraid to let their teenagers work. However, studies show that teenagers who have jobs of up to 19 hours a week actually get better grades and are more likely to get a secondary education. Plus, it looks good on their college applications. It is also teaching them time management of balancing work with school.
2. Open a Child Checking Account
When your teenager gets a job, you should get them their own checking account. Until they’re 18 (19 in some states) they’ll be part of your account, in that you’ll be a signer on their account and if they overdraft the money you are responsible
Opening their own checking account, then working with them to do their bank statement monthly is a good way for them to learn money management skills. But don’t be surprised they overdraft the account a few times. Teach them to set aside some money each week into a savings account separate from their checking.
3. Give your teenager an allowance
Even if your child has a job, giving them an allowance is a good thing. You don’t want to give them “free money” however. The money you give your teen should be money you would spend on school lunches, activities, personal hygiene products, and clothing.
So, whatever you’ve budgeted for these items, give directly to your teen and let them budget the money to get these things. The trick is not to bail them out when and if they mess up
4. Teach your teenager how to budget
When you give them free reign on their own money, and help them work out a budget to start, they will learn money management skills that will carry them far into their adult life. So, if your child has a car payment, insurance, a cell phone, clothing, school supplies, etc..
Put this all into their budget and then let them take care of it. Check up each month to make sure they’re on track, but mostly stay hands off once you show them so they can learn.
5. Teach your teen how to pay bills
When you’ve given them an allowance to cover the things you normally pay directly for, and they have a job, along with their own checking account they will now learn how to pay their own bills. This is a great skill to have because so many young adults go out into the world having no idea about these things.
Your child will be head of the pack. It might be a good practice to show them a sample budget for when they have their own place too so they understand about water, electric, trash, rent and other types of bills they do not have now.
6. Teach your teen how to invest money
Part of managing money should also include how to save and invest their money. A portion of their money, probably at least 10 percent should be saved in both short term and long term savings accounts. You can even teach them how to start a 401K, which will truly set them ahead of their peers when they move out on their own.
7. Teach your teenager how credit works
Credit today is truly a dangerous thing. Some credit cards are being offered that charge more than 50 percent interest. Plus, the credit card companies prey on young people by sending more than one or two offers to them daily once they reach the age that it’s legal, usually college age. Teaching them how this works is imperative so they can see what a trap it can become if they’re not wise and careful
8. Teach your teen wise spending habits
Letting a teenager handle their own money will teach them wise spending habits. This is most especially true if you do not bail them out when they make a mistake.
For example, if your child knew that prom was coming up but did not plan for expenses, don’t give them the extra money. It can be a hard line to take, but as long as you explain everything when you first give it all over to them, they’re going to learn fast.
9. Be open with your teen about your financials
Finally, and this is a big one. Don’t hide your finances form your children. So many parents see this as personal information and while it is to a point, teenagers really do need to know how hard you work to provide what you provide.
If they understand it more, and get how much work goes into having that meal on the table each night their wants will become a lot more realistic as they get older.
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Tim Connolly 