Various research studies continually show that children’s attitudes about money are based on what they learn at home. For some, that may be a scary thought! For others, it may seem like an impossible task. However, it can be a relatively easy process for those families willing to make a few changes and result in positive, long-term benefits for their youngsters. In addition to building financial skills, engaging kids in learning about money helps them better understand and accept personal responsibility for their own lives. And the good news is, even parents who aren’t successful with their own money management practices can lay the foundation for their children to make better financial choices.
While parents often shy away from discussing the family’s financial status with their kids, the process of involving them can be the beginning of open communication about money matters as they grow and mature. Allowing and encouraging children to participate in discussions about paying bills, making future purchases and setting family goals helps them understand how money relates to real-life experiences. This process may also include discussing financial mistakes and how you handled them.
Of course, each age range calls for a different level of information. Following are some suggestions for teaching children some basics about the value of money:
Preschool: Keep it simple. Start by having them collect coins for something they want to buy, and place the coins in a clear container so they may watch their savings grow. You can also introduce basic counting skills, showing how five pennies equal a nickel and four quarters equal one dollar. Encourage them to identify one goal they want to reach, such as a ticket to a special movie or a new toy. Setting aside money for a specific goal will help them understand the importance of saving for future purchases and establish a habit of savings.
Elementary School: Introduce financial institutions. Help your child open a savings account at a local bank or credit union. You may want to use some of the money they have saved, pay them allowance or pay them for completing household chores. You may also want to match their initial amount as a show of support. Some children may be able to earn money by doing odd jobs for other family members, friends or neighbors while others may receive cash for birthdays. Whatever the source, be sure they place a certain percentage of all money received into their savings accounts. And, finally, get your child involved in community service or charitable giving. Either have them set aside a small amount of money each month or donate a few hours of time to a worthy cause.
Middle School: Set up a budget. Work with your child to determine what purchases are appropriate expenditures for their savings. Perhaps you want them to start buying birthday gifts for their friends, paying for their entertainment (video games or cell phones) or buying specific items of clothing that goes above your family budget. Help them to determine how much they can spend from their savings or other sources of income. Again, you may want to match what they save to help them reach their goals.
High School: Focus on the future. Many of the choices your child makes during these years can have lifelong implications. Talking with teens about careers and earning potential, consumer credit and credit cards, savings and investing, student loans and college expenses can help them avoid future mistakes. However, be sure to keep the lines of communication open to assist them in making choices or help them resolve whatever mistakes are made. Because many teens have jobs or allowances, it is an appropriate time to take them to the bank or credit union to open an account and get a debit card. Having the banker discuss the rights and responsibilities of managing a bank account will provide additional guidance to build your teen’s money management skills.
College/Young Adult: Financial responsibility is a lifelong commitment. Just because your child is grown and living away from home does not guarantee financial responsibility. College students with a viable income are eligible for credit cards that can be easily maxed out. It is critically important to keep the lines of communication open, without being judgmental. Help them establish a budget and learn from the mistakes that they make. Encourage them to open an IRA, a mutual fund or other investment tool as they plan for their future. In addition, discuss the importance of participating in their employer’s retirement fund. Because most college students today have some form of student loans, be sure they are aware of their financial responsibility for repaying those loans once they leave campus.
Taking the time and effort to prepare your children for their financial future is win-win. As parents, it relieves some of the financial pressure of providing everything or correcting every financial mistake they make. For children, it allows them a safe environment to make mistakes and recover from them without wrecking their financial future. It also teaches personal responsibility and gives them the tools needed to be financially independent.
Sue Lynn Sasser, PhD, is a professor of economics at the University of Central Oklahoma.