According to a 2016 report by Sallie Mae, “Majoring in Money,” students aged 18 to 24 carried an average credit card debt of $906 in 2015. This exemplifies the point made by Nellie Mae in a 2013 report that credit card usage isn’t going to go away. If anything, it reveals credit card use, at least by young adults, is on the rise. The average credit card balance carried by college students just three years ago was $499. This reflects an increase of nearly 190%.
So educating kids on how to use money responsibly is crucial to their future financial well-being. Fortunately, those who learn and develop good saving habits early in life are more prepared to deal with what lies ahead and develop into financially responsible adults.
The younger set
Begin teaching your child the concept of money, including the values of coins, from the ages of 4 to 6. During this time keep it simple. Consider allowing your child to earn money to save in a piggy bank for small chores.
It’s all elementary
By the time your child is 7, an allowance can be extremely helpful in their learning about money and developing good habits. Familiarize your child with banking. Open a savings account so she can watch her money grow. Also, help set achievable goals, such as saving for a new toy or putting away for holiday gifts.
Keep in mind, many banks charge service fees unless a minimum balance is kept, and frequent trips to the bank may be impossible. As an alternative, set up your own ‘family bank.’ Give your child a spare checkbook ledger or savings passbook. Then copy blank savings deposit and withdrawal slips from your bank for your child to use. Require him to fill out the slips and log transactions in the ledger. Also give your child monthly interest for his savings so he can experience the immediate reward of saving money.
The teen scene
Designer clothing, entertainment, and car expenses are the biggest areas of teen spending. Some teens also put away for college. But few are prepared for the adult world, says developmental psychologist Nancy J. Cobb in Adolescence: Continuity, Change, and Diversity. That’s because most teens aren’t primed for the responsibility of paying for food, housing, and health care costs.
Those teens involved with the family budget and who contribute to family expenses learn a valuable lesson. Opting to show teens the spending categories in which they have a direct impact on family expenses is helpful. Also, agreeing on a reasonable amount in which teens can contribute to help cover those expenses can go a long way toward preparing teens for adulthood.
Whether teens contribute or not, their working hours should be limited to no more than 10 to 15 per week. According to Cobb, researchers have found adolescents who work, especially 20 or more hours per week, are not as engaged in school as their nonworking peers. If you restrict your teens’ working hours to ensure success in school, it’s good to provide an increased allowance for clothing and personal needs. You can then help your teen to budget her money.
Still, there are many ways teens can learn the value of money and develop good habits. In fact, limiting a teens’ funds may force them to be more selective and make wiser financial decisions.
Tips your kids can bank on:
Allow your child to make some of her own spending decisions. Place reasonable limits. Then offer appropriate guidance while giving your child opportunities to learn from her mistakes.
Don’t loan your child money every time he wants it. But do offer occasional opportunities for him to learn the costs of borrowing and the experience of repaying the loan. When deciding whether to loan money to your child and how much, consider the purpose of the loan, past repayment, and his ability to repay within a reasonable time. Charge interest on loans so children learn the cost of borrowing. Realize, regardless of how financially savvy we raise our kids to be, borrowing does have its place. At the very least, it’s often necessary or practical for acquiring a college education, reliable transportation, and a home. These can be wise investments even when borrowing is necessary.
Teach your child how to set financial goals. By the teen years, these may include those big ticket items just mentioned: saving for automobile expenses, college, a home, and other long-range plans. And don’t overlook the importance of short-term goals, which offer your kids a feeling of accomplishment and a boost in self-esteem.
Require your child to put at least 10% of each paycheck, or allowance, into savings. It’ll be much easier to adhere to as an adult if practiced during childhood and teen years.
Don’t be completely secretive about family finances. Children have few opportunities to see and experience the financial side of the adult world. This doesn’t mean you need, or even should, disclose everything. But it’s easier for kids to understand if they can see it in concrete terms. Develop a detailed household budget. Then explain it so your adolescent can see how your family spends and why.
Discuss the different ways in which you save and invest your own money, and explain how these different plans work. Point out both the benefits and the risks.
Try a computer program such as Family Bank by ParentWare to help your child track his allowance, expenses, loans, and more. It calculates interest for both savings and loans, allows children to write checks to their parents, creates graphs of their spending habits, and more.
Kimberly Blaker is the author of a kid’s STEM book, Horoscopes: Reality or Trickery? containing fun experiments to help kids understand the scientific method and develop critical thinking skills.