There’s a saying in the education world that parents are a child’s first teacher, whether they choose to embrace the role or not. Of course, this doesn’t only apply to academics, but to life skills as well, such as money management.
“Kids as young as five years old are already able to understand the basic idea of saving versus spending,” Sarah Ryan, Senior Manager, and Strategic Partner Relations at SECU Maryland told MadameNoire. “Teaching kids basic financial literacy at a young age sets an early financial foundation and provides them the opportunity to learn, develop, and strengthen their life skills to become financially capable adults.”
Here are five simple strategies for teaching kids money management that you can begin today.
Explain the basics
“Depending on the age of the kid, explain how hard you work to provide the things around them. An expensive new TV might be the equivalent of a week’s worth of work,” said Ksenia Yudina, Found and CEO at UNest. “Making an association like this can help a kid build a decent understanding of the value of an item, and that you have to work hard to be able to attain them.”
Highlight wants versus needs
“Being able to determine what is necessary to have versus what is nice to have is the baseline of making good financial decisions,” shared Ryan. “Highlight that after basic needs are met, fun expenses such as a new toy or a family vacation can be considered.”
Display how money grows over time
“Using a piggy bank to save money is a great way to start the conversation and the act of saving with younger kids,” Ryan also recommended. “Consider using a clear jar to collect their savings so kids can see the money grow, and get excited along the way. In addition to the clear savings jar, add two more jars: one for spending and one for sharing (or donating). Each time your child receives money, have them divide the money between the jars (i.e. between saving, spending, and donating).”
Make teens authorized users
“Parents should add their kids as authorized users on their credit cards around age 16. This will jump-start the child’s credit history —assuming the parent and child use the card responsibly,” added Ted Rossman, Industry Analyst at CreditCards.com.”That will give them a significant leg up by the time they want to apply for credit of their own — whether it’s a car loan, an apartment rental, or another credit card. While this tactic can build credit even without the child receiving or using the card, I suggest using this as a learning tool in addition to a credit-building strategy. Give your teenager access to a credit card with appropriate guidelines while he or she is still living under your roof. Some card issuers, like American Express, let you set limits on authorized users’ spending.”
Provide pocket money
“If kids never have money to spend, it’s hard for them to understand the value of a dollar. Just like in real life, money should always be earned, and parents can determine what those requirements should be,” Pravin Chandrasekaran, BSA Officer at Varo Money. “My best advice is to be consistent and provide money appropriate to the child’s age. Very young children can have money put away for them in a piggy bank and overtime, as the amount grows, they can eventually transfer that money to a real bank to open their first checking account. Encourage saving by telling kids that you will match savings but they cannot access it other than special occasions (birthday or twice a year) it helps teach the concept of how saving can earn you more money.”