|By Sarah Carlson, CFP®, CLU®, ChFC®
The right kind of financial literacy for kids, no matter how old your children are, is to make important money lessons for kids. How many times have you heard "I wish someone would've taught me about ___ before I became an adult"? As a parent, it is your job to teach your kids about money; we both know that financial literacy for students in school is not available.
A big mistake that I see far too often is parents taking a "mower" or more popular "helicopter" approach. It usually comes with good intentions, but the practices of excessively giving everything to your kids that they ask for and no opportunities for conversations about saving, budgeting, or making smart choices can end up hurting your kids in the long run. The action of trying to protect your children from life lessons deprives them of the opportunity to problem-solve for themselves and can mold your child into an entitled one. This behavior puts your finances at risk later to solve your adult kids' money problems. That cycle does not make for a productive and healthy society.
Think about it, as a parent, you are the most significant influence on your children. As your children are forming their habits, as they age, and with some strategic actions, you can be sure to set them up for success. I have put together some guidelines and suggestions below for appropriate lessons to be introducing your child to as they grow up. I hope you can take my advice and apply it to where you are as a parent. It will save you from a financial nightmare in the future.
A few disclaimers before I proceed discussing financial literacy for kids:
*For all ages, it is crucial not to make money a source or cause of shame or guilt! If you have financial baggage psychologically, you need to address this for the health and wholeness of your child's relationship with money.
*Money is not a good or bad thing; it is a resource needed to obtain the things you need or want. Period.
On with your extensive guide for money lessons for kids.
The biggest lessons to introduce money management for kids and reinforce at this age are setting limits and saving. I know it can be hard to say no, mostly for fear of a tantrum at the store, but once you've said no, you have to stick with that decision. Begging you for this or that is not a strategy that you should be rewarding.
Try making some visible jars to save, spend, and share for money they receive on birthdays and holidays. Having a visual reminder of what they have collected and what it can be used for can help set those boundaries before you even walk into a store. While shopping, remind them of the different jars when they ask for something.
Elementary School (6-10)
What I suggest you work on at this stage is allowing them to make choices with their money and to introduce the idea of money in exchange for meaningful work. Have active conversations while you shop together. Money is an important resource that isn't limitless. Show them how you make smart choices. What foods are you swapping name brand for bargain at the store, show them where the sale rack is when buying clothing, and if they ask you for something, prompt them with the question "do we need this?"
Try putting the power in their hands. If you are at the store and need something, give them a small amount of money and have them shop for it. Financial literacy for youth includes providing them with meaningful experiences about choice and staying within a budget that they were given can be very informative and empowering.
This is a great age to introduce the concept of earning as part of your money management for kids lessons. This of course starts at the family level. An allowance is one way to go here. Having a chore chart with values assigned to big chores is another.
Try setting up a "Parent Bank." The idea here is to keep a running ledger of your kid's allowance or money earned (instead of giving them cash as they earn it) to model how a savings account works. You could display it on a whiteboard that can be easily updated, or for you tech-savvy parents out there, through a budgeting app. Say they tell you that they want a new scooter, have the conversation about how much that will cost, how much they have already earned, and what they can do to make up the difference.
Middle School (11-13)
All of the lessons learned so far can still be a part of their relationship with money, but it is time to up the responsibility and pay off as they get older. As your child learns more math in school, it is time to have them apply those concepts to money. Financial literacy for youth in middle school is a perfect time to introduce the concept of compound interest. Consider opening a real savings account (if you haven't already) that is just for them and what they would like to contribute. Reinforcing the idea of putting in more money now will mean more money later.
Try having them do more and more of the calculations at the store. How much will this be because it is 20% off? What will this be with tax? Start sending them into the store by themselves for small grocery runs and let them choose which butter to buy for those chocolate chip cookies that your family is going to make that day.
They can be involved with all stages of a bigger purchase for themselves. Work with them to set up longer term savings goals for that new pair of shoes everyone is wearing. Let them make the physical purchase at the register when they reach that goal. And don't forget to celebrate those accomplishments! Be proud of the goals that they achieve and the delayed gratification that they are learning.
High School (14-18)
Financial literacy for teens comes with new financial purchases during the joys of high school. The responsibility of having a car and keeping it fueled, tuned up, and insured may be in their future. The college search begins here and it will be the biggest financial decision that they have ever made. Having the conversation earlier is better about what has been saved for college, what tuition looks like, and how scholarships and loans will come into play. Debt and its implications always need to be a part of this conversation. Strive for transparency here, it could be a motivator for them to work harder to get good grades and pick up a job of their own.
I would recommend setting them up with a way to spend independently, most likely a debit card. You want them to be able to go out for milkshakes with their friends! With a card comes responsibility and making sure the consequences are clearly conveyed for overspending. Set them up with a mobile banking app so that they have insight into how much they are working with at all times. Budgeting their money for what they want to spend is something to be learned.
This is a great time to introduce bigger financial concepts. Talk about investing, that compound interest comes into play here, show them how you do your taxes, how you pay bills, and how you budget your money for the family. Is there anything that you wish someone would've taught you before you were out on your own? Teach them!
Adult (18 and Up)
This will likely be the first time that they are living independently, so talk to them about how to live within their means. Money management will look different if they are in college and paying tuition, books, room and board, so take the time to reassess. They will likely make mistakes and the stakes will have never been higher, but it is your job to give them the tools for success. FOMO runs deep at this age but talking to them about how saying no to another night of takeout or movie ticket can be a healthy thing. There are always ways to modify those memorable nights to be a bit more budget-friendly.
With a new mailing address, there is a big chance that they will be targets for mail delivered credit cards, so warn them to just say no! Talk about what a credit score is, how to impact it, and what it is used for. Do they want to move out of the dorms and sign a lease? Not paying a credit card bill on time could impact that decision.
As they enter the workforce, talk about employer benefits and retirement contributions. Advise them to start putting money away for retirement ASAP, not to miss an employer match, cashing out vs rolling over retirement funds when they change jobs, and how compound interest makes yet another appearance.
Remember: time is their greatest asset. The person who saves earlier will make more over the long term than the person who saves more later.
Kicking your adult kid off the dole can be the wake-up call that they need. You have to allow them to fly and learn from their natural consequences.
Never let your adult child compromise your financial future! If you are not o.k. and financially stable, you cannot help them. Let them make their own mistakes! You won't always be there to save the day and they will need to be their own safety net at some point.
As a parent, you want to give your kids the world. Taking financial literacy for kids will equip them with the proper knowledge and habits is just as important as financially providing for them as they get older. It is never too early to start having conversations with them, and they are going to be better off for it.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
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