Times likes this more than ever it’s important to teach our children financial literacy. Rent, interest rates (except in savings accounts), student loan balances, and taxes are at an all time high. Every thing is high these days. The question I ask myself is how do I prepare my child for financial adulthood. Responsibly running a household, preparing for financial emergencies, and being an educated consumer is not just second nature. Incorporating financial literacy principles and strategies in child rearing is important. Just another step to set your child up for success. We as parents have so much on our plate, I think this one is worth the extra load.
This site has some pretty cool ways to introduce personal finance to children.
In high school or elementary we don’t have a financial literacy class requirement. We learn complex algebraic equations but not how to do taxes or balance a bank account. Helping your child build good savings habits is imperative. Saving goes hand and hand with banking. Teach children about the difference between bank accounts and what their purposes are. Teach them how to manage a checking account and handle credit. My Pinterest board Teaching Children About Finance is a great resource.
My dad took me to the bank when I was an adolescent and opened a savings account for me. This was a great step towards building my financial future. The only problem is that I wasn’t taught how to use that bank account. He also didn’t take me with him to the bank when he made deposits. I was missing key concepts like what is an overdraft? What are the benefits/differences of a checking and savings account? Deposits and withdrawals? The list goes on and one of concepts I needed to know along with my account. I ended up losing the account when I turned 18 as they switched it to an adult account and deducted fees until funds were depleted. Moral of the story is don’t just open the account and feel like that’s enough.
For this reason I require my daughter to deposit her own money. She takes advantage of direct deposit from her summer job and is required to save 50% of all earnings (birthday gifts & allowance included). I started this when she was 13 and at 16 it’s automatic for her. I want to make sure my daughter learns to pay herself first. My current lesson is teaching her to not let disposable income burn a hole in her pocket. This also serves the purpose that she become familiar with checking and savings accounts. She makes her own purchases with her debit card. Many banks offer minor accounts that include a debit card. Having a debit card with a Visa/Mastercard logo will give your teen a sense of adulthood and help them become familiar with making transactions. The custodian of the account can still over see all transactions. I check sometimes to make sure she is making the transfers.
Echeck has info about great online accounts for children.
You also should check your credit union.
Another important lesson is credit and interest. Many children’s eyes are way bigger than their wallets similar to us adults. Allow them to borrow money from you for minor purchases. I usually give her a due date and interest is accrued daily if she pays back late. This practice helps them grasp an understanding of credit and how credit cards and loans work. Also the importance of compound interest which can be a double edged sword. Once they grasp the concept of gaining interest expand on how beneficial it is in generating wealth. Start this process early to help combat reaching 18 years old and being bombarded with credit card offers. If I had known then that swiping my life away would come back to haunt me.
They need to know that which each swipe their bill raises and paying the minimum balance will not only increase the amount of time it takes to pay it back. It will also increase the amount of money they have to pay back. This concept was lost to me and thus I destroyed my credit at an early age. I thought I had hit the jackpot. I remember thinking so I really get merchandise now and don’t have to pay. I don’t have to tell you all what happened next.
Expose children to the concepts of credit. Teach them why credit is so important. One great way to teach about credit is to create practical exercises. My daughter usually anticipates some upcoming money and begin to spend it before it gets in her hand. Not all the time but sometimes I use this as a teaching exercise for her. I give her a spending limit of half of whatever money she is expecting (remembering that she has to save half) and I teach her to use it responsibly. For example if she has $100 coming I will only allow her to borrow about $30. She originally fused and didn’t understand why I gave her $100 but only allowed her to use $30. That was my que to break down utilization rates and how they affect your credit score.
Now that she is older I make an effort to be somewhat transparent with my own credit cards balances. I show her things I do to keep my credit card balances low which also holds me accountable. I utilize more credit than I should sometimes and show her how I may cut back for a month or two while dedicating all that saved money to knock down balances. When I reach my goal we usually celebrate by going out for ice cream and paying cash of course. She also knows that I keep my credit cards at home and they don’t travel with me every where I go. I am showing her that I am only using my cards for emergency and new shoes doesn’t qualify.
Many times we look for accountability partners to help keep us on track with finances. If you have a teenager you already have one. This is a win-win, introducing them to credit and personal finance concepts while essentially perfecting how to build your coins.
Teaching them how to save and basic personal finance strategies will help them start out great. Upon adult hood that savings might help fund their first investment.
What are some ways to teach children about money that you have used?