According to the current Employee Benefit Research Institute, only 13% of workers are confident they have saved enough money for retirement as of March. Such a poor statistic highlights the need for individuals to learn good money habits early, so they can take charge of their financial lives.
A 2010 poll by TheMint.org showed approximately seven out of 10 children aged 17 and younger said their parents were the biggest influences on their saving and spending habits, while only 16% said friends were their major influence. Fourteen percent of respondents said media and celebrities affected their financial habits, and a paltry 1% listened to advice from teachers about saving and spending money. Clearly, as a parent, you are the authority, when it comes to raising financial savvy children. We are here to provide some helpful tips for leading your kids down the road of financial success through the various stages of childhood.
Preschool and Earlier:
It is never too early to instill good habits. Just like teaching your children to eat their veggies, brush their teeth, or wash their hands, this is an important time to teach them to establish good habits like emphasizing good personal finance. With values beginning to form at this age, it is important to show them the concept of delayed gratification, the value of money, and the idea of frugality.
Tips:
- Role playing games can help young children recognize coins and begin to remember the value of each.
- Introduce the concept of a piggy bank and encourage children to save their coins to it.
Elementary School:
As your children begin to grasp the concept of money and its affect on their everyday life, it is time to explain what things cost and budgeting.
Tips:
- Use an Allowance: An allowance will teach kids basic budgeting and rationing skills.
- However, it is important that they work for their money. Have your child complete age-appropriate chores.
- For example, you can have your 5-year-old put their toys away or have your 10-year-old take out the garbage.
- With an allowance, it is important to create a formal schedule, which will introduce the concept of a payday.
- However, it is important that they work for their money. Have your child complete age-appropriate chores.
- Open a Savings Account: The account will build upon the piggy bank concept and teach them to save regularly. More importantly, it will introduce the idea and importance of compound interest.
- As the parent, you can also “strongly encourage” them to set aside a specific percentage of the money they earn or receive as gifts for their savings.
Middle School:
The drop out rate for high school is roughly 1.2 million students, which works out to about 7,000 per school day. This provides an opportunity in the middle school years for parents and teachers to stress how limited education can impact lifetime earning potential.
Tips:
- Act like a Consumer: Now, that your child understands an allowance, it is time to observe their spending habits and coach their behavior toward good financial habits.
- One idea is to raise their allowance, so when they ask for money to go to the movies, they will have needed to budget some of their income for entertainment money.
- If your child likes to play video games, you should consider introducing cost-sharing, where you set a spending limit on games. Then, have your children cover the rest of the expense.
- Encourage Savings: Like an employer who matches their employees’ 401(k) contributions, consider matching the savings contributions of your children.
- This will serve as a great motivational tactic.
- After they understand savings, you can introduce long-term financial planning, such as, discussing college costs, cars, houses, and retirement.
- Introduce Taxes: When it is time for your children to get a “real” job after school, they may be surprised when they see the taxes withheld on their first paycheck.
- Before they start working, educate them on the concept of taxes, so their disappointment will be limited.
High School:
This is your last chance before your child is on his own at college or in the workforce. Take advantage of this crucial time to impart some financial wisdom of borrowing responsibly.
Tips:
- Consider loans for big purchases: Teach your child the idea of taking out a loan and paying it back.
- For example, when it is time for your children to get their driver’s license and they want a car, you could draw up a loan agreement with them, and set a payment plan with interest.
- Penalties for not honoring the agreement should be disclosed and enforced, if your children do not live up to their side of the deal.
- Consider issuing a credit card: You do not want your children leaving for college not understanding how credit cards work. Basically, discuss some of the pros and cons of buying goods on credit.
- Consider a Bill My Parents Reloadable Prepaid MasterCard
- There are no credit implications for parents or teens;
- Purchases are not made on credit; thus, they do not affect credit scores, and they are not withdrawn from a bank account;
- Funds are pre-loaded onto the card by the parent;
- Teens can only spend what is available on the card account;
- Parents can monitor purchases in real time, and
- Parents can lock/unlock cards.
- Consider a Bill My Parents Reloadable Prepaid MasterCard
- Monitoring Accounts: Teach your teenagers to review the bank accounts regularly to curb banking fees.
- Their budgeting skills should be put to the test, as they try to spend within their means and avoid overdraft charges.
- Investing: When they have learned to budget and monitor their accounts, encourage your child to research the stock market or appropriate mutual funds in which to invest.
- The sooner your children understand the importance of saving and investing for retirement, the better prepared they will be to set their future financial goals.