The 5 Most Important Money Lessons To Teach Your Kids
- January 19, 2017
- Posted by: gordon
- Category: Parenting Tips
By Laura Shin
Financial skills and the essentials about money are very important in order to raise a generation of mindful consumers, investors, savers, and givers. This is according to Beth Kobliner, the author of the New York Times bestseller ” Get a Financial Life” and a member of the President’s Advisory Council on Financial Capability. She believes that children as young as three years old can grasp financial concepts like saving and spending. Researchers at the University of Cambridge who were commissioned by the United Kingdom’s Money Advice Service, revealed that kids’ money habits are formed by age 7. Thus, the sooner the parents start taking advantage of everyday teachable money moments (for example, give a six-year-old $2 and let her choose which fruit to buy), the better off kids will be. Parents are the number one influence on their children’s financial behaviors.
Here are the top money lessons to be learned at each age, as well as activities to illustrate each point.
The Lesson: You may have to wait to buy something you want.
The ability to delay gratification can also predict how successful one will be as a grown-up. Kids at this age need to learn that if they really want something, they should wait and save to buy it. Kids should learn that going into a store doesn’t always mean you’ll buy something for them. Kobliner tells her kids,” We are here to buy a gift for X, and we’re not going to buy anything for you , because we’re not here for that.”
Activities for Ages 3 to 5
- When your child is waiting in line, discuss how important it is to learn to wait for what he/she wants.
- Create three jars – each labeled ” Saving,” “Spending” and ” Sharing.” Every time your child receives money, divide the money equally among the jars. Have him or her use the spending jar for small purchases. Money in the sharing jar can go to someone you know who needs it or be used to donate to a friend’s cause. The saving jar should be for more expensive items.
- Have your child set a goal, such as to buy a toy. Make sure it’s not so pricey that they won’t be able to afford it for months. Every time your child adds money to her savings jar, help her count up how much she has and about how much she needs and when she will reach her goal. These activities give them a sense of the importance of saving, waiting and being patient.
The Lesson: You need to make choices about how to spend money.
At this age it is important to explain to your child that money is finite and it is important to make wise choices. Activities like saving, spending, sharing jars and goal setting should be continued but parents must begin to engage their child in a more adult financial decision-making.
Activities for Ages 6 to 10
- Include your child in some financial decisions like explaining why you chose the generic brand rather than the other brand that costs 50 cents less but tastes the same. Or talk about deals, such as buying everyday staples like paper towels in bulk to get a cheaper per-item price.
- Give your child some money in a supermarket and have her own choice about what fruit to buy, within the parameters of what you need, to give them the experience of making choices with money.
- When you’re shopping, talk aloud about how you’re making your financial decisions as grown-up, asking questions like, “Is this something we really need?”
The Lesson: The sooner you save, the faster your money can grow from compound interest.
At this age, you can shift from the idea of saving for short-term goals to long-term goals. Introduce the concept of compound interest, when you earn interest both on your savings as well as on past interest from your saving.
Activities For Ages 11 to 13
- Describe compound interest using specific numbers, because research shows this is more effective than describing it in the abstract. Explain that if one set aside $100 every year starting at age 14, by age 65 it will be $23,000.
- Have your child do some compound interest calculations on Investor.gov. Here, she can see how much money she will earn if she invests a certain amount and it grows by a certain interest rate. And have her read inspiring examples of someone who used compound interest to his advantage incredibly so well.
- Have your child set a longer-term goal for something more expensive than the toys she may have been saving for. One example is if your child has a habit of buying a snack after school every day, she may decide she’d rather put that money toward an iPad.
The Lesson: When comparing colleges, be sure to consider how much each school would cost.
Talk with your child about the expenses for college. But don’t let the price tag discourage your child. Explain how much college graduates earn compared with those without college degrees, thus, making college education a worthwhile investment.
Activities For Ages 14 to 18
- Discuss how much you can contribute to your child’s college education each year. Every parent should start the college cost conversation by ninth grade because being honest about what your family can afford will help the kids be realistic about where they may apply. But remember that there are many ways to finance college other than your own money. You may both look into which private schools are generous with financial aid and scholarships.
- ” Parents should absolutely make their college kids get a part-time job,” says Kobliner, adding that research by Dr. Gary R. Pike of Indiana University- Purdue University Indianapolis shows that students who work 20 hours a week or less at on-campus jobs get better grades because they’re more engaged in student life.
The Lesson: You should use a credit card only if you can pay the balance off in full each month.
It is all too easy to slide into credit card debt, which could give your child the burden of paying off credit card debt and student loans at the same time. It could also affect his or credit history. Thus, to reverse the trend of spending beyond our means and racking up hundreds of dollars a year in interest, it’s critical that parents teach their kids how to use credit cards responsibly (or better yet – not at all ! – unless they can pay the total bill every month)
Activities for Ages 18+
- Tell your child that if a parent cosigns on a credit card, any late payment could also affect the parent’s credit history.
- Together, look for a credit card that offers low interest rate and no annual fee.
- Explain that it is important not to charge everyday items so that way if there’s an emergency expense that you cannot cover with savings, you can charge that. However, it is even better to build up funds in the emergency savings that should be at least three to six months’ worth of living expenses.