The cliche goes like this:
These kids today don't know the value of a dollar. They think money grows on trees. What's going to become of them?
The truth is that the majority of parents do not have regular talks concerning spending, saving, and understanding money. Even more puzzling is the fact that schools are not teaching young people about personal finance either. Kids don't know because kids are not getting the information. So let’s take a look at the best ways to teach kids about money.
First of all, here's the real problem. Many adults do not understand money. Beth Kobliner, the author of Get a Financial Life, says this:
"Look at the mortgage crisis and how many families lost their homes — 3.9 million foreclosures. Look at the amount of money — $1.1 trillion — we owe in student loan debt. The amount — $845 billion — we owe in credit card debt. It's pretty clear that adults don't know much about money. To help the next generation avoid the mistakes of their elders, and to live financially fit lives, they need to be taught the essentials about money."
Kobliner, a member of the President's Advisory Council on Financial Capability, was also a significant player in creating Money as You Grow, a program of age-appropriate money lessons for children.
Age-Appropriate Financial Learning
Three-Years to Five-Years-Old
At this stage, young ones need to learn that they may have to wait to buy something they want. This trait is difficult to achieve for all ages, but delayed gratification is a predictor of a child's future success. The idea that parents need to transfer to their kids is if they want something, they will have to wait and save to get it. Lessons surrounding this issue might include:
- Discussing the importance of waiting and being patient
- The creation of a savings jar bank, a spending jar bank, and a sharing jar bank
- Setting goals; discussing how much more money he or she needs to reach his or her goal
- Figuring out the time it will take to reach the goal
Kobliner, a member of the President's Advisory Council on Financial Capability, was also a significant player in creating Money as You Grow, a program of age-appropriate money lessons for children.
Eleven-Years to Thirteen-Years-Old
These are the ages to really teach kids about money. The tween ages are the time to begin thinking of your children as young adults. Budgeting should be adapted, and small jobs at home or for friends can start. Help your child plan for long-term spending and saving goals, and continue to instill the importance of sharing with others. Parents should also begin to hone bank management skills.
Some lessons that go along with these goals include:
- Allowing your young one to make more significant decisions by giving him or her the responsibility of clothing purchases, for example
- Considering a bi-monthly allowance to encourage more independent purchasing and financial decisions
- Opening a cash-only bank account that could be monitored by the parent and the child
- Helping your child make contributions in person so he or she can see how much it means to the recipient
- Extending a small loan to your child with agreed-upon loan terms
Fourteen-Years to Sixteen-Years Old
Some educators say that this age is not too early to begin learning about the stock market. To begin, the family could have each member pick a stock, such as Mattel or Nike. Then the family as a whole can read and watch the financial news and discuss how the stock values fluctuate. Kids need to understand what a budget is all about and how to use one. It becomes a lesson in knowing the difference between wants and needs.
How to teach kids about money who are Seventeen-Years and Up
Parents must allow teenagers to use store-valued cards to learn financial responsibility. Parents can load the teen's allowance on a store-valued card and then assist him or her to budget the money on it. A monthly allocation makes sense for teens, as does a part-time job.
The "college talk" should include:
- Financial aid
- College loans
- Government programs that help pay back the loans
- Critical comparing of colleges based on costs, employment prospects
- Try not to use credit cards
- Budget in a way that allows the young one to build-up three months' worth of living expenses in emergency savings