Instilling your children with responsible money habits and leading by example can help them work toward a stable financial future.
From setting up a savings account and figuring out an allowance to explaining how budgeting and credit scores work, different financial discussions are appropriate for different age groups.
When you decide it’s the right time to start teaching your kids good money habits, keep these tips in mind.
Start Talking About Money
When it comes to discussing money and financial topics with their kids, 25% of parents were somewhat reluctant, 14% were very reluctant and 11% were extremely reluctant, according to a Parents, Kids & Money survey from 2019.
However, 53% of the children surveyed – ages 8 to 14 – said they wished their parents taught them more about money. Before your child reaches the age of seven, start talking to them about money, the importance of saving and how much different goods and services cost.
Open a Savings Account
It’s never too early to open a savings account in your child’s name. This is where you can deposit any funds they receive on birthdays and holidays, before they’re old enough to make their own financial decisions.
This money can start gaining interest, and your child will have some funds to start learning with when the time comes. What’s more, the age of bank accounts can help them with applying for credit later.
Allowance is a great way for young kids to start earning money. According to a survey from T. Rowe Price, 51% of parents said they give allowance, but their kids have to earn it. This is opposed to 17% who give allowance without any requirements and 32% who don’t give allowance at all. What’s more, 52% of parents surveyed said they give $10 or less per week.
How you decide to grant allowance depends on your parenting style. Some parents give allowance for daily chores, like making the bed, feeding a pet, putting away dishes. Others only give allowance when their kid(s) go beyond regular/expected responsibilities.
When it comes to the amount of money you should give your child as an allowance, experts tend to say that, on a weekly basis, 50 cents to a dollar for every year of age is appropriate.
When teaching your kid about saving, use a clear container – like a mason jar or plastic tub – to allow them to watch the progress of their savings. You can even have more than one, labeling each for different things, such as saving, spending and giving.
Many children take well to visual learning. Seeing the dollars and change stack up over time makes tracking goals clearer and can lead to a bigger sense of accomplishment.
If there’s something your child wants, teach them how to purchase it through budgeting.
Show them how to set a financial goal, including the price of the item they want, plus a little extra so they’ll still have some money left afterwards. If they don’t have any savings remaining from birthdays and holidays, they may be able to save faster by doing extra chores, or they’ll simply have to be patient and save up to meet their goal gradually.
Introduce a Debit/ATM Card
If your child/teen gets a part-time job, they should have a more secure place to save their money. When your child becomes an adolescent, it’s time to consider whether they’re ready for a debit/ATM card.
A debit card allows them to pull funds from a checking and/or savings account and make purchases. Show them how to track their spending, maintain minimum account balances and remember to replenish their savings after a larger purchase.
Today, a lot of banking is done online, and many banks have apps that allow for easier money management. Help your child stay on top of their finances by setting up low-balance alerts, charge notifications and more.
Start Building Credit
Once your teen is a bit older and starting to think about college, trade school and/or making a significant purchase like a car, it’s time to teach them about credit.
Your teen will need a credit card in order to start building their credit. Teach them what does and doesn’t affect their credit score – like credit card use, payment history and more – with this guide.
Have them use their credit card only for charges they have the money to cover. Then, have them pay off balances right away. Also, emphasize the importance of checking their purchase history to find and report fraudulent charges. And make sure they know what to do if their credit card number is ever stolen.
Finally, let them know they are entitled to one free annual credit report each year from the three credit bureaus – Equifax, Experian and TransUnion. This will allow your teen to track the progression of their credit score as they try to get at close to 850 as they can.
Be a Good Example
It’s true that you will likely need to be a co-signer for certain accounts for your kids when they are young, and you’ll be acting as their financial advisor for many years. However, one of the most important things you can do to teach your kid(s) good money habits is to lead by example.
Show your child how you budget, save and spend responsibly by being a strong saver and savvy spender. Sharing your tried-and-true financial habits, as well as money mistakes you’ve made in the past, can all become valuable lessons to the young people in your life.
How do/did you teach your kid(s) good money habits? Tell us in the comments below.
Speaking of good money habits, AAA and Discover offer high-yield Certificate of Deposits and Online Savings and Money Market Accounts.