Like many of life's lessons, learning strong money management skills begins when we are young. Therefore, there is no better time to commence teaching your child about money than when he or she has just learned to count.
As parents, you have the unique opportunity to customize the learning experiences of your children. For money matters in particular, guidelines should be set and reinforced throughout childhood. This ongoing process will lay the foundation for your child's financial future as an adult.
The first step in this process is for you to assess your own financial practices. Children learn through observing those around them. Be warned: the example you set for your child will speak much louder than words.
Below, several money-related activities specific to each age group are discussed. As a parent, only you can determine which activities are most appropriate for your child. Generally, however, it's best to begin with activities that he or she will find interesting, easy, and rewarding. And regardless of the age of the child, most parenting experts suggest that you refrain from giving allowances as behavior incentives.
Preschool and Kindergarten (Ages 3-5)
At this age, children have a dynamic sense of creativity. They enjoy exploring their environment and being introduced to new objects. Children appreciate the repetition of new activities as long as they involve touching, drawing, and color.
Show your child pictures of different coins and bills. Point out the varying colors and sizes.
Rub a No. 2 pencil over a sheet of paper on top of a coin. You can also use colored pencils or crayons to elicit an image
Allow your child to hold coins in his hand and then ask him to keep them in his pocket. Later he can use these to buy a small item from a vending machine.
Set up a piggy bank or labeled plastic containers to store collected coins.
Early Elementary School (Ages 6-7)
Most early elementary school students can count very high and have been introduced to more complicated concepts such as arithmetic and time. They are aware that adults use money and gladly accept the opportunity to have some of their own.
If it fits in with your values, start giving your child an allowance.
Give your child purchasing alternatives that can be rewarding yet cost very little.
More expensive goals should be reached through a savings-matching agreement. With your own money, you can match each dollar your child puts into savings.
Allow your child to make a small purchase and use his allowance to pay for it.
Late Elementary School (Ages 8-10)
Around third grade, children develop hobbies and diverse interests. They build up friendships and participate in frequent group activities. At this age, children are able to manage small amounts of money and make financial decisions to achieve their short-term goals, such as expanding a baseball card collection or buying a new book.
Explain to your child that doing extra chores for family and neighbors, such as yard work, are ways to make money outside the home.
Establish the amount you expect your child to save from money earned and from his or her allowance. At least ten percent is recommended.
Encourage your child to give to charity. Explain the notion of poverty and the importance of helping others less fortunate.
Provide a notebook or memo pad for your child to use in tracking her expenses. Make sure she keeps this journal in a safe place.
Show how money can be saved with coupons, sales, and buying in bulk.
Expose your child to the global concept of currency through the internet, newspapers, and magazines. Children will be intrigued by the names of currency across various countries, as well as the idea of bartering.
Consider opening a mutual fund for your child. This might later become his spending money while at college.
Middle School (Ages 11-14)
At this age, your child will begin to express a desire for more expensive items such as clothing and music. She will be affected by marketing, peer pressure, and the need to fit in. This is an important time to talk to her about the right and wrong ways to obtain money and to explain that money cannot buy happiness or acceptance. Emphasize that gains in character and education last much longer than material wealth.
Introduce your child to long-range goals such as saving for college.
Discuss a spending plan. Start by identifying all of your child's sources of income, including allowances and gifts. Develop a spending plan that will allow her to provide for daily expenses and occasional wants. Revise the spending plan as needed.
Introduce the topic of taxes. Tell your child that a portion of all the money he makes will go to support the country and the community. Explain that the money is used to pay for education, police, firemen, roads, and other public health needs.
Educate your child about television and other forms of marketing by helping her to evaluate advertisements. Teach her to look for consumer reviews online.
Take your child grocery shopping. Teach him to compare labels and buy the best product for the money.
Explain the importance of warranties and return policies.
High School (Ages 15-18)
Before you know it, your teenager will be a young adult. With adulthood comes major responsibilities, such as saving for a home and planning for retirement. It's time to prepare your teen for independent living. Help her assess job opportunities, standards of living, and major life purchases by discussing the choices you have made in the past. Teach her that the things we appreciate the most are those that we have worked the hardest to obtain.
Your child will gain a sense of accomplishment by achieving the goals he has set. Once he has had some success saving for short-term goals, it's time to focus on long-term goals.
Parents should explain how they are saving for goals 10 to 20 years away, and what those goals are. Don't dictate to your child what his goals should be. This will only destroy the learning environment you've created and make goal-setting seem more like a chore than an aspiration.
Open a checking account for your child. Make sure she knows how to write a check, balance her checkbook, and responsibly use an ATM. This is a good time to talk about the dangers of bounced checks. You should also review the simple but important concepts of overdraft protection, minimum balances, and monthly service fees.
Introduce your child to financial planning software.
Discuss the financial fundamentals of living independently.
Go over a paycheck and explain to your child what each deduction represents.
Teach your child about paying bills online.
Discuss the importance of insurance.
Talk about unexpected job loss, medical expenses, and auto maintenance. Help your child understand the need to set aside money for an emergency fund containing at least 3 to 6 months of living expenses.
Consider making loans to your child with interest charges. She will quickly learn that borrowing money is expensive and should not become habit.
Support your child's savings strategies and interest in investments.
College and Beyond (18 and Older)
If you don't teach your college-age children about the fundamentals of debt management, they may find out the hard way!
Teach your child to only buy what she can actually afford.
People under 21 can no longer get credit cards unless (1) they have an adult co-signer or (2) they can prove that they have the means with which to pay the bills.
If your child gets a credit card:
Explain the importance of saving all receipts and matching them against the credit card statement.
Stress the necessity of paying bills on time! Late payments come with a hefty fee.
Help your child to develop a plan to pay in full as soon a possible.
Teach your child to choose a credit card based on annual fees, interest rate, and security and not on gimmicks or giveaways.
Read the fine print with your child. If you and your child do not understand the terms and conditions of the agreement, contact customer service.
Teach your child to keep old statements in a safe place for appropriate lengths of time and to shred them before discarding.
Encourage you child to compare her actual income and spending to her budget and to make adjustments when needed.
Teaching your child about money can be enjoyable for both of you. If you begin to feel overwhelmed, just remember that the foundation of financial stability consists of three simple skills:
Building good credit.
Controlling debt.
Saving money.
It's almost as easy as 1, 2, 3!
© Harris, Rothenberg International, Inc.
Reviewed 07/10