Birds and Bees of Banking: How to Have ‘The Talk’ with Your Kids About Money
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- By Valencia Higuera
- April 4, 2013
Money is a taboo subject in many homes, with parents choosing not to discuss the family finances with their children. Perhaps this is how they were taught and they can’t break the pattern. Then again, maybe the family finances aren’t going too well, and parents avoid money discussions as a way to protect their children.
But whether your financial situation is good or bad, teaching your kids about money will contribute to how well they manage their finances. You can’t control their future financial choices, but with a strong financial education, they will be equipped to avoid poor money decisions and develop the habits that make for a strong savings account.
Financial Literacy for Kids
Like most parents, you want your kids to be happy and successful in all aspects of their life. You may help them develop a likable personality, push them in school, hone their skills and offer guidance as they choose a career path. But with regards to money topics, do you drop the ball? Teaching financial literacy to kids shouldn’t be optional.
It is, however, understandable why you may postpone the talk.“Most parents are afraid to talk to their kids about money because they’re not comfortable with what they might teach,” says Lori Mackey, founder and CEO of Prosperity4Kids, Inc.
For the financially savvy, money lessons may seem like common sense, and teaching kids the basics isn’t a big deal. But parents who aren’t as comfortable with their own financial management may fear giving wrong advice, or feel that it is better for kids to learn these lessons elsewhere. But since many schools do not address personal finance, what you teach may be the only education your child receives on this topic. The good news is you don’t have to be an expert or all-knowing to give your kids a basic foundation for financial success.
Teaching Your Kids About Money and Personal Finance
Of course, teaching children about money is much easier when there’s an interest. Personal finance and money topics don’t generate excitement in all people — and if you wait until your child is a teenager to bring up money management, they may lack interest. Not to suggest that it’s too late – late is certainly better than never. But if you want your kids to be interested in personal finance, start early.
Some parents mistakenly believe that money discussions are not appropriate for young children. This couldn’t be further from the truth. Personal finance is not something we learn overnight – it takes years to develop good money management skills and teach children to save. And while you wouldn’t discuss heavier topics with young children, there are plenty of age-appropriate ways and activities to incorporate personal finance in family discussions. Here are some suggestions for important finance topics to make sure you cover, along with ways you can teach kids about money management.
Ages 5 and 6: How to Count Money, Earn and Spend it
This is also an appropriate age to teach children to save. Give your child a piggy bank or jar and have him save some of his allowance.
Ages 7 – 10: Savvy Shopping and Savings Accounts
Include your child in the grocery shopping and show him how to be a savvy shopper. Ask your child to help you clip and organize coupons. Announce how much you have to spend on groceries, and with a calculator, have your child keep a running tally of everything you put inside the cart. If you go over your predetermined budget, remove nonessentials from the grocery cart.
Also, show your child how to compare prices and look for deals. This not only provides a lesson in budgeting, but helps kids distinguish between needs and wants. Plus, it’s at this age that kids learn they cannot always buy the things they want.
Another tip: Take your child’s savings to the next level and open a savings account. Discuss how a savings account keeps his money safe, and explain how interest grows his money.
Ages 11 – 13: Setting Savings Goals and Credit Cards
Make saving a priority and have your child deposit 10% of his allowance into the savings account. Maybe your child wants a new pair of shoes or a bike. Rather than buy the item, encourage him to save up for the purchase. If he can save at least half the money, offer to pay the other half. Teaching kids to save money early can help as they save for larger purchases in the future, such as a down payment on a house.
Introduce your kid to credit cards. Some children mistakenly think of credit cards as free money. Explain how credit cards work, and how to use them responsibly – paying bills on time, and charging only what you can afford. Discuss how credit card interest works. Additionally, talk to your kid about identity theft and how to keep his or her personal information safe.
Ages 14 – 18: Paying Bills, Earning a Wage, and Managing Their Credit Score
Educate your child on how to pay bills and manage a checkbook. Stress the importance of setting payment reminders, and not waiting until the last minute. Let him observe you paying bills online or writing out checks. Sit your kid down and show him how to create a budget to cover all his expenses.
Once your child is old enough to work, encourage him to seek part-time employment. Make sure he understands how state and federal taxes work. He should continue to contribute to his savings account, but also open a checking account. To prepare older children for adulthood, they should be responsible for some of their monthly expenses, perhaps their cell phone bill, entertainment and transportation costs.
Use a prepaid credit card to give your child a hands-on lesson in managing credit. Although prepaid cards aren’t actually credit cards, but rather debit cards, they can introduce your child to good credit management. After you deposit money on the card, act as your child’s creditor and give him a spending limit. But this isn’t free money. Every month, require your child to pay back whatever he spends. If your child can’t pay back his debt, take the prepaid card. This real world lesson teaches him how to manage and carefully budget his money to avoid negative consequences.