10 Things Every Kid Should Know About Money Before Graduation
Are you ready to give your kids “the talk”?
Many families struggle helping their children learn about money management and financial health. As a parent, you are the primary source for your child’s financial education, but it can be hard to give the “money talk” if your own personal financial situations might make you a poor role model. To open a discussion about finance, allow children to be responsible for saving and spending their own money. A small allowance and piggy bank provide opportunities to start learning about long-term financial stability. Together, you can learn how to save for a goal, balance income and expenses, budget purchases, and learn about the effects of interest. It is never too late for parents to set a positive example, and nurture positive financial techniques.
Here are 10 money tips every kid should know before the age of 18:
1. How to save for a goal:
Start out small and simple.
Young children can’t grasp the concept of saving for college, but they can understand how to put aside a little money to buy a small toy or game. Start with a small piggy bank as a teaching tool, you can attach a photo of the item they’re saving for as inspiration.
Children in elementary or middle school can have a real savings account to save for those big ticket items, such as new sports equipment or a school field trip. In high school, college becomes a real and tangible goal, and kids can start saving a portion of their earnings from their part time or summer jobs.
2. How to manage an allowance:
Kids will spend without limits if the money is yours. When it’s their own money on the line, they will start taking financial responsibility. When your child is small around six years old, an allowance is a great way to demonstrate the concepts of earning and saving money. Many people choose to make the amount equal to half their child’s age, however it can be increased or decreased depending on what he/she should pay for.
Allowances should not be tied to household chores that they are expected to do, such as helping with dishes, cleaning their rooms and walking the dog they begged for at Christmas. Kids should earn money by doing services and extra jobs, such as gardening, vacuuming and taking out the trash.
Have them pay for their own wants, such as candies and small vending machine toys. As they grow older, their responsibilities should increase to paying for their own movie tickets, cell-phone bills, non-essential fashion accessories, and gaming systems.
3. They won’t get everything they ask for:
The most important words you can say to your children are “I love you”, but a runner up might be “No, you can’t have that, and here is why.” Everyone wants to be the fun parent, but always saying yes can create spoiled children. The key to saying no without being a villain is to explain your reasoning. It must be a solid reason, not “I just feel like it”. Unless you have a firm reason, kids will nag you until you cave.
For example, if your child wants the newest Xbox, but you think the one he has is adequate, tell him he has to save up his allowance, and earnings, if he wants to replace it. When your kids are able to start saving money from gifts, allowances and earnings, make it clear that any purchases that they do not need are their responsibility.
4. How to spend smart:
It is just as important to learn how to spend as it is to save.
Preschool age children can use their piggybank coins to buy things from vending machines and dollar stores. It is important at this stage to learn how money works, and that your wallet is not a limitless supply of cash. For older children, teach them how to compare prices and find the best deals. Even a trip to the grocery store can help them learn to compare prices. You should also teach them about their consumer rights, such as warranty and return policies. If something is broken or doesn’t fit, teach them how to take it to customer service and receive a refund.
Kids should be free to make their own spending choices within reason; however, parents should place a limit on the things children can buy, such as illegal and dangerous goods. Teach them about unhealthy foods and making the right choices when spending money.
It is also important to avoid the mentality of having to buy something just because it goes on sale. When a child’s desired item is on sale, but they don’t have enough cash, don’t give them an advance on their allowance. It is dangerous to go into debt to “save” money, especially if the item is a want and not a need.
Easy money trick rule of 72
72 divided by interest rate = number of years it will take for your money to double
5. How to be generous:
Charity is about giving time, thought, love, as well as some money. As a role model, you cannot teach compassion without doing it yourself. Some examples include; helping elderly neighbours, volunteering, baking for charity sales, and donating things to people in need. Talk to your children about the causes they might support, and the importance of donation. This will help them let go of toys and other items they no longer need, by giving them to people who appreciate it, and make them feel good about giving. They may also consider using their own money to buy gifts for holiday drives.
Other ways to promote giving would be to set up a jar for a particular charitable cause, and let your child put aside a part of their allowance for donation.
6. How to earn a buck:
Most children’s first experiences working are household chores. As they get older and capable of handling more responsibility, they may also work around the neighbourhood babysitting and mowing lawns.
Their first salary job should be in their teens, in the form of a part time or summer job. Teens who don’t hold down a paid job miss out on valuable life lessons of time management, responsibility, teamwork, how to find a job, and how to keep one. Learning to communicate with employers is essential for job hunting in the future. Every paycheck is an opportunity to manage money, and taxes even apply to teens. This is a good time to also start learning about what those taxes mean, retirement savings and what their time is worth.
7. How fast money grows:
Preschoolers are too young to learn about compound interest, but when you feel like they are old enough to understand the concept, demonstrate how even small amounts saved can eventually grow. For younger kids without bank accounts, you can consider applying a small amount of interest on the amount they save.
8. What it means to invest:
Children should be able to understand the basics of a stock market. Simplify it and explain how owning a share of stock is just like owning a little piece of a company. Avoid jargon about diversification, market capitalization and asset allocation as this will just confuse and discourage them. Consider buying them a stock in their favourite company so they can follow news about changes in share price and activities of the company. If they like videogames and technology, they can buy shares in Apple, Nintendo, or Google. If they like fashion, consider shares in Gucci, Ted Baker, Nike, or Adidas.
9. How to balance a checking account:
Every teenager should have a bank account with a checking account and debit card. They should be able to balance their income and expenses. This hands-on experience will set the foundation for proper credit management and budgeting.
10. How to stay out of debt:
Plastic is not cash.
Credit cards are loans with interest if you’re unable to pay off the entire amount before the end of the month. Demonstrate the risk of large loans with high interest. Try out this online calculator to see you how long it will take to pay off a debt, and the total interest paid. Understanding how much interest accumulates over time and seeing that amount accrue, will teach kids to approach debt more cautiously. Once a teen or young adult has experience covering their expenses, and monitoring their spending, they can consider applying for a credit card. It’s best if they’re over 21 and can do it by themselves.
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