Teaching Children Money Management Skills
Teaching children money management skills early in life can help them make smart financial decisions in the future. Here are a few ways to introduce financial literacy skills to children of all ages.
The Three-Jar Allowance
Illustrate the concept of budgeting by using three clear jars that represent current expenses, short-term savings, and long-term savings. Separating cash into jars makes it easy to compare the results of spending and saving, and lets younger children see the money accumulate in each jar.
Earning an Allowance
To learn how to manage money, children need money to manage, typically from an allowance or from doing small jobs for friends and neighbors. Decide how much the allowance should be and whether it should be linked to jobs they are required to do. Talk to children about how to budget earned money for expenses and savings.
Working for Wages
Teens who want to earn money may want to find a job to work on the weekends or during holiday breaks. If they need more flexibility with their schedule, they could offer paid services such as lawn care, shopping, dog walking, childcare, tutoring or anything else that may be of interest to him or her.
Open a Savings or Checking Account
Opening a checking or savings account for your child will give them the responsibility of managing their money at a financial institution. With your guidance, they will decide where their money goes, helping them to learn self-control and the importance of utilizing a budget.
Show them how to Budget
Set your child up for success by introducing them to easy budgeting tools. Teens most likely won’t have many bills, so now is a good time to teach them how to create a budget and understand if they don’t get right the first time, they can simply create a new one. Try using a budget calculator to customize a budget and plan where to spend money.
Introduce them to Simple vs. Compound Interest
Many savings and checking accounts offer interest (known as simple interest) where a percentage of the principal deposit is paid to the account holder. But compound interest takes it a step further by paying interest on top of the simple interest earned. Compound interest adds up more quickly than simple interest which is why it’s important to start saving early. Luckily you don’t have to be a math whiz to understand interest. Try using a compound interest calculator to see how much of a difference interest makes.
How to Save for College
If college is in your teen’s future, help them prepare a financial strategy while in high school. Working teens can put money into a savings account now specifically for college expenses. Working throughout school is also a strategy to help pay for expenses. Explore scholarship and grant opportunities to help offset costs. Consider federal loans or private loans to help bridge any financial gaps.
Have the Credit Card Conversation
Talk to your teens about credit cards before they leave for college or live on their own for the first time. Using credit cards responsibly will help teens establish a good credit history which is important for renting an apartment or getting a good rate on a vehicle loan or mortgage. Plus, some credit cards offer perks like cash back or travel amenities that could help them with their financial goals. However, accumulating debt can be detrimental to their future and should be avoided. That’s why it’s important to introduce financial concepts early to children to instill positive behaviors and decision-making skills.
Taking time to introduce money management skills to children at any age is a gift that will last a lifetime. If you are looking for additional resources, check out our Money Mammals Kids Club and Money Masters Teen Club.