Last Updated on October 9, 2021 by Editorial Team
One of the best things you can do for your children is to teach them to handle money responsibly. Any child past the age of seven can begin learning a few core lessons about ways to earn (via a weekly allowance or part-time job), save, spend, and manage money. Of course, you need to calibrate lessons based on what’s age-appropriate. For example, young children aren’t usually ready to grasp the concept of taxation, but they can easily figure out the mechanics of piggy banks. Older kids and teens are often fascinated to learn the mechanics of long-term wealth accumulation, basic business finance, compound interest, and other money-related topics.
So, if you want to instruct your children in the finer points of money-making and personal finance, consider the following suggestions, and feel free to adapt each one based on a youngster’s age.
For children 10 and older, basic budgeting is a great topic to introduce. Not only can you begin by showing them techniques for budgeting household expenses, but they can learn how to deal with their own money from part-time jobs, chores, and allowances. Explain about setting up a budgeting app online and create an adjustable budget so they can see how to make a fixed amount of money last for a week or a month at a time.
Send your kids to college without over-burdening them with debt. After scholarships, grants, in-state tuition discounts (if available), and whatever other resources can be put toward the cost of schooling, consider at least subsidizing the total bill. Some parents pay for the entire cost, but there’s no need to do so.
The thing you want to convey to your child is that it’s a good idea for them to focus on their studies and getting an appropriate job after graduation. Let them know that you’re okay with covering some or all of the cost of school. If you choose to take this route, you’ll not only be in the working world but can turn to low-rate Private Parent Loans for borrowing. The Private Parent arrangement is geared for mothers and fathers who don’t want to be cosigners on a loan but the main borrowers. That way, when graduation day comes, your son or daughter won’t be weighed down by education debt before they even have a chance to begin their careers.
Learning to save on a regular basis is a habit that every young person should learn. Unfortunately, many aren’t exposed to the concept until their late teens. To get a head start, show youngsters at about age nine how to open a savings account at a local bank, make regular deposits, and check the balance whenever they wish. Consider using a child account that most banks offer, where you’ll have to approve any withdrawals.
Using Credit Responsibly
Children 12 and older are at the perfect age to start using credit. There are two caveats to this bit of advice. One, the amounts should not exceed a relatively low amount, perhaps $100. Two, you’ll need to keep a close eye on monthly statements to be certain that the preteens are spending responsibly. Most major financial institutions offer kid cards that are essentially a low-limit version of standard-issued credit cards. Always remember to monitor usage and have regular discussions with your children concerning when it makes sense to use plastic.
Any teenager who works a summer job learns about taxes, whether they want to or not. Avoid filing for them. Instead, show them how to choose the correct forms, figure out whether they need to file or not, and how to use online resources to take care of the rest. Then, offer a quick tutorial on how you prepare your own tax filing each year so they’ll learn about the importance, and legality, of the annual ritual. Take the time to explain the way general taxation rates work, how deductions and credits can greatly lower a typical tax bill, and why it’s so important to file on time and pay the correct amount owed, or request a refund.
Even older teens have a tough time wrapping their minds around the concept of preparing for a financially secure retirement. Even so, it’s wise to discuss the topic and give them a general outline of the steps you’ve taken to prepare for the time when you’re no longer working. Let them know how essential it is to start as early as possible to take advantage of compound interest.
Even if your kids only earn a few hundred dollars at a summer job, consider teaching them about the value of donating at least a small portion, even one or two percent, of their earnings to a worthy charity. This step is an effective way to demonstrate to youngsters that money is not all about greed and wealth, but also about helping others.