Raising financially savvy children involves teaching them a variety of aspects from budgeting to planning, earning and saving. Besides giving them an understanding of the value of a dollar, teaching children about fiscal responsibility helps prepare them for life in the real world.
1. When do you think children should learn about saving and spending money?
You can speak with them about establishing a budget and the importance of saving even when young. A client shared this method, with the family around the kitchen table they divided “play money” representing a month’s income into piles according to the monthly bills. The children can visually see how much money comes in, how much goes out and where it goes. When older, go into topics like college planning, taxes, and Social Security. Learning about these opportunities will help them better manage money as they grow up.
2. At what age should parents open a savings account for their child?
You can open a savings account at any time, even before their birth. When 13 or 14, it may be a good idea to open a joint bank account with your kids so they visualize their saving and spending. They can learn how to save up to purchase things they really want or items they’ve had their eye on for a while. As they get older, they might start thinking about buying a car or making another large investment, which requires effort and planning. Show them how to balance a checkbook, create savings goals and keep track of account balances online.
3. What is the best way to explain earning money to your children?
Even young children can begin to understand the concept of earning money. Explain to your children that money is earned by working, and that you can only spend what you have. Paying an allowance may help them understand what it’s like to get paid on a schedule. Help them set goals for how they spend and save their allowance. It’s important to make sure that you stick to the payment schedule for allowances, otherwise the lesson may be lost.
4. How do you explain what a budget is and how to budget?
An allowance can help teach goal setting and be a great first step to teach your kids about budgeting and managing money. You might pay an allowance every week for the youngest children, every two-weeks for preteens, and monthly for teenagers. Gradually spreading out the pay period as children get older will help them understand the need to manage their spending. You can work with your teenager on making a monthly budget for spending their allowance or earnings from a part-time job.
5. What is the most valuable lesson to teach a child about finances?
It’s likely you expect your kids to clean their room, help with the dishes, and do other chores. Consider offering them the chance to make extra money by taking on another household task that goes beyond the routine. Getting paid for extra work may help instill good habits and give your children more control over saving and spending. If they spend their entire allowance right away, resist giving more money before their next allowance is due. Use this as a learning opportunity and talk with their kids about how to make smarter choices and do better the next time. As they age, encourage them to set aside part of their income to grow their savings account for the future. With careful planning and budgeting, they’ll likely be on track to building a solid financial base and develop good habits for a lifetime.
Written by: Corine Haten
Corine Haten is a licensed Merrill Edge Financial Solutions Advisor. Licensed in eight states, Corine has been assisting customers save and invest for what matters most in their lives for 17 years. She can be reached at 602-867-6758 and is located at 13008 N. Tatum Blvd in Phoenix.