You may have experienced the consequences of poor money management when you fell behind on rent payments or overextended your credit card debt. To help your kids to avoid these pitfalls, start teaching financial literacy now.
Research suggests that many of our financial habits are set by age seven. If good habits aren’t formed early, it becomes harder to point your offspring in the right direction. Here are seven activities to help guide them.
- Having kids earn their allowance through household chores can help them build the self-reliance they’ll need later in life.
- Opening a savings account or kid-friendly debit card teaches the value of saving and provides an introduction to the banking system.
- Allowing your kids to observe budgeting discussions can help them learn how to spend responsibly.
1. Make Them Earn Their Allowance
When children have to work for their money they’ll learn to use it more carefully. Many parents provide a weekly allowance as payment for doing chores. An allowance can also help teach budgeting skills. Family-oriented apps like BusyKid and Greenlight let you assign a dollar amount to each task and send the funds to their account with a few quick taps on your phone.
2. Encourage Part-Time Gigs
High school can be a busy time for adolescents, with homework and extracurricular activities but if they can spare just a few hours to work at a coffee shop or retailer, they’ll probably be better for it. Your middle schooler or early high schooler can earn extra bucks by mowing lawns or walking the neighbor’s dog. Websites such as Nextdoor and the newsletter from your homeowner's association can be effective ways to connect with residents who need help.
3. Contribute to Purchases
Every parent knows what it’s like to be inundated with requests for various toys or video games. Younger kids, in particular, don’t understand that there’s only so much money you have each month for discretionary purchases. Encouraging kids to pay half the cost for a new Lego set or an American Girl accessory will give them a better sense of what things cost.
4. Make It a Game
Board games can help kids learn the importance of thriftiness. Payday is among the best for teaching kids valuable money management skills where players have to make their money cover expenses. They can purchase items, take out loans, and learn to budget. Monopoly can also provide valuable lessons, with participants choosing which properties or buying strategies yield the biggest payoffs and measuring risk versus reward with every move they make.
5. Open a Bank Account
The piggy bank is a savings vehicle for younger children, but when they hit elementary school, consider opening a kids' account at a bank. It’s a way to instill the importance of gradually building up their balance and an introduction to the banking industry. When they start earning a paycheck, introduce the concept of the time value of money or help them open a Roth IRA. If you can, consider helping out with a savings match.
Greenlight and GoHenry offer kid-friendly debit cards where kids can earn money through chores or an allowance and then use the cards to make purchases online or at a store. Both products emphasize transparency, giving parents control over where kids can use their cards and sending notifications after each purchase.
6. Introduce Investing
One of the keys to long-term financial health is knowing how to invest wisely in stocks and bonds and learning some of those tools before they start their first full-time job. Open a small custodial account at a brokerage for which they help direct the investments. Eventually, those assets will fall under their control when they reach the age of majority.
7. Have Honest Conversations About Money
Be open and honest about your family’s finances. Parents often worry that being too candid will only lead to worry, especially when experiencing a job loss or other family problems. Your kids will be better equipped to handle their issues if they know how to respond. Talk about sticking with your budget and cutting back on nonessentials during lean times.
When Do Kids Start Learning Financial Habits?
Researchers David Whitebread and Sue Bingham of the University of Cambridge have found that many of their habits around money are set by age seven.
What Are Some Ways to Teach Kids About Stocks?
If you're looking for a hands-on way for them to learn about the risks and rewards of investing, you can open up a custodial account through a brokerage. You have control over trades, and kids can access the funds when they reach the age of majority.
Which Apps Are Available to Help Kids Learn Money Management Skills?
Greenlight and GoHenry offer kids a debit card and an app for both parents and children. Parents can see where their kids are spending money and send them chore or allowance funds through the app.
The Bottom Line
Earning an allowance through household chores or working at a part-time job can help kids build financial literacy. Opening a savings account, a kid-friendly debit card or a custodian brokerage account teaches kids the value of saving and introduces them to the banking system.