It’s never too early to teach children the value of money. We do it with little ones as we watch them drop pennies and other loose change into their piggy banks, telling them that one day, those pennies will grow into dollars. We tell them money doesn’t grow on trees, that a penny saved is a penny earned.
But when our youngsters reach the preteen and early teen years, as they get ready to earn their first real money through jobs like babysitting, caring for the neighbor’s yard and such, it’s time for the money lessons to accelerate, financial experts say.
“Unlike more broad areas of life, teenagers and preteens form many of their financial habits prior to adulthood,” said John Hagensen, the owner and founder of Keystone Wealth Partners and a father of seven. “That is why it is important for parents to start talking to and teaching their children about money from a young age.”
But as they grow, the lessons become more real, with money becoming a more tangible, and valued, asset to growing children.
“If you have a child in or approaching their teens, there are many financial strategies that can help them evolve from novice to experienced as they progress toward their financial independence,” said Abby Wendel, the president of consumer banking at UMB Bank. “You can introduce financial literacy and teach money management in a few different ways.”
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Learning To Save
“Children can learn to save at a young age by putting aside allowance money or cash they’ve earned for doing odd jobs for others,” said Liz Frazier, the executive director of financial education for Copper Banking. “When kids earn their own money, they are able to practice firsthand how to manage money, practice budgeting and saving. This provides valuable experience for kids of any age and sets the foundation for financial independence as an adult.
“When your child starts to earn, the most important aspect parents should focus on is helping their child create the habit of saving. Encourage your kids to save some of every paycheck they earn. Maybe they save 10% every time they make money, or split their pay 50/50 between the money they can spend and money they are saving – it doesn’t matter how much they save. What’s important is they build the habit of ‘paying themselves first’ every time they make money.”
Preteens and teens can put their money in a savings account, checking account or even an investment account, depending on their age.
“My No. 1 tip to my nieces and nephews who are teens and pre-teens is to save,” said Claudia Valladares, a financial advisor at Kovar Wealth Management. “My oldest niece just got her first job at a fast-food restaurant and the first thing we did was open a checking, savings and an investment account. Every paycheck, we have a portion of her funds directly deposited into her savings and investment account. Her savings account is not at the same bank her checking account is, just so if she does want to access those funds, it’s a little harder for her to do so. I am very proud of what she’s been able to save in just a few months.”
Learning To Budget
Learning to spend responsibly goes hand in hand with learning to save, Frazier said. That’s where budget comes in.
“Parents don’t necessarily need to create a strict budget on a spreadsheet for their kids, but they should help their kids understand the basics of cash inflow and outflow,” she said. “Walk through how much money they have, how much they’ll earn, and what they plan to spend. Talk to your kids about making smart decisions when buying something, such as avoiding impulse purchases and comparison shopping.”
Sean Burke, the vice president and director of institutional money management at Stuart Estate Planning Wealth Advisors in Florida, agreed.
“When I was in middle school all the way through college, I would caddy at a golf course during the spring, summer, and fall. The golf course would not be open due to the New England winters for part of the year; this meant no income for me,” he said. “My mom taught me to have envelopes that were for each of the winter months. Throughout the year, I would contribute part of my income to these envelopes. Come the time of the snow/cold, I had savings for each month. This was a valuable lesson in budgeting and forecasting expenses, putting money away during the good times so that you have savings when you need.”
With preteens and teens attached to their smartphones, budgeting is simpler by using any of the apps available today. Anytime kids spend money, they can input the expenditure on the app and track their budget in real time.
Learning To Invest
Even for young people making limited money, it isn’t too early to invest, just as Valladares’ niece is doing.
“One of my favorite ways to invest with teens is through a Roth IRA,” said Molly Ward, a financial consultant at Equitable Advisors and a mother of three. “Assuming they have income from a job, they can save the money and invest it in the Roth IRA. Some parents will match the teen’s income into the Roth as a way to encourage working and saving. Two life lessons that are great to reward. … The amount of compounding interest should be amazing by the time they are eligible for a withdraw at 59.5 years old.”
Learning To Plan For Emergencies
Finally, young people should learn early that no plans are perfect and how to budget for emergencies, Hagensen said.
“Expecting the unexpected expenses is another important area to teach your preteens about,” he said. “Having an emergency fund is one of the first steps in a solid financial plan. Providing them with the responsibility to pay for certain unplanned expenses, even in their preteen years, can help them see for themselves that ‘budget busters’ are regular occurrences.”
All of these are steps toward financial literacy for young people, and parents can help as serving as mentors, discussing their own financial history and lessons learned, Wendel said. It will be time well spent.
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