Raising your children to be helpful, kind, productive adults is no small feat. For those of us in the trenches of parenting, it can seem like a daunting task at times. However, it will likely be one of the most rewarding aspects of your life. If you are like many of us, you have your checklist of the important life lessons you wish to pass along to your children as they move through the various stages of childhood. And, one of those checkmarks is hopefully to teach them the value of money and saving/investing so that when they are grown and living on their own they have a solid foundation from which to build their nest eggs.
To help you make this item on your list a little simpler, we have broken down our guidance for how to introduce the concept of money at various ages.
Ages 3-5
At this age, the important concept for children to grasp is the value of a dollar and to begin to have an understanding of what things cost. If they never see you use real money or you don’t point out why you make certain purchasing decisions, you are missing a teachable moment. You can show them by example while grocery shopping and selecting one product over another because it costs less. A great way to teach this lesson is to have them bring $10 from Grandma to a store they love and ask them to find something they would like staying within their $10 budget. You will be amazed at how many times they put down the first $10 item and deliberate about what they really want when the purchasing decision is not driven by you.
You also have likely had a piggy bank in your child’s room since birth, filled with miscellaneous coins and maybe a few dollars. Every once in a while, have them take it down and empty it out. Talk about how much money they have saved and ask if they have any goals for what they would want to buy with their own money.
Ages 6-12
From ages 6-12, children are learning that it costs a lot of money for the things they want including activities they enjoy like movies with friends, etc. This is a great age to start encouraging them to use their own money for items you may not be willing to purchase. Put the decision in their hands to spend the $75 on the new lego set or wait to ask for it for their birthday. Maybe you agree to pay for the movie ticket, but not the concessions as an example.
Back to our piggy bank example, there are some great apps available today that work really well for this age to introduce saving concepts. One we really like is called Rooster Money. This app allows you to bank your child’s money in the app, parents can contribute a weekly allowance to the account, set savings targets, introduce charitable giving and set up goals for an item they are saving for. In our house, we emptied the kids piggy banks, had them count up their money and started their account with that. From there, they can earn money from weekly chores that automatically gets added each week. You can also “deposit” birthday or holiday gifts into the account to build it up. Finally, you can set up rewards for good behavior, report cards, etc. The key is how easy it is to customize to work for your family.
Ages 13-18
The concept to drive home at this age is saving vs. spending. Not every dollar in should equal a dollar out. And coupled with that is the notion that earning money is important in order to be able to purchase/spend on the things that you want. Without dollars coming in, or if you aren’t saving effectively, you will not have the money you want when the opportunity or need arises. You can introduce short-term wants vs. longer-term goals, and the tradeoffs associated with spending now versus saving for later. Again, there are some great apps, FamZoo is one, that allow you to also introduce the concept of interest, so you can set savings goals for your children and award them with interest.
Another important finance teaching at this age, which starts to prepare them for being on their own, is paying their own bills or at least contributing to some of the household bills – cell phone, car insurance, gas money, internet – these are all good places to start. It teaches them responsibility and minimizes the sense of entitlement that can so easily occur with teens. If they miss a payment, maybe they don’t get to use the car on Friday night, etc. These are just examples, and you will have to decide what works for your family.
Ages 18+
College loans, credit cards and responsible spending are the three concepts to drive home for this age group. Hopefully by this stage, your child has developed some good habits as it relates to money and saving. At this age, credit cards can and should be introduced so children can start to develop a positive credit history which they will need later in life. However, be sure to do your research to find a card that works for you and your child – consider a card designed for students with a low limit, low interest rate, no annual fee. Teach your child to only charge things within their monthly budget and to pay off their bill each month. Many college kids get into credit card debt that carries over well into their post college years.
Be sure to have a conversation with your child during the college selection process about how much you plan on funding vs. how much will be covered by student loans and what your intentions are for who will pay off those loans. This is one of the first major “purchases” for your child. Make them part of the financial decision, it may even change their thoughts on which school they decide to attend. At the very lease they will be aware of the significant investment you are putting into their education. Hopefully, they take full advantage of the opportunity.
We hope some of these tips were helpful. Depending on what stage of parenting you are at, there is always a teachable moment or money/finance lesson to be shared with your children. We recently recorded a 30 minute podcast on this very topic with the Farmington Valley Podcast Network. If you would like to hear an expanded conversation on these lessons and also hear our tips for children that move back in after college, link here for the full Podcast Recording. https://farmingtonvalleypodcast.com/2019/08/20/farmington-valley-community-podcast-august-2019/