Over the years, I’ve received the standard ties, mugs and handmade items that are synonymous with Father’s Day. But the greatest gift of all has been raising money-smart kids. However, with one in college and three more waiting in the wings, I’ve also seen my kids make some “interesting” money choices—and they’re still learning how to manage their funds.
Here’s how you can help your kids navigate the financial waters at key stages of their lives.
The Younger Years
- Teach them the concept of earning money. When your kids see you paying for groceries or buying a present with a credit card, they probably don’t associate those actions with you going to work each day to earn that money. A credit card is an intangible idea for most young ones. Paying your kids to do extra, age-appropriate chores, such as taking out the garbage, helping in the yard or washing the car, can instill in them the value that money is earned and doesn’t just magically appear on a small piece of plastic.
- Practice goal setting. What do your kids really want? A new bike? The latest Xbox game? Rather than buy it for them (because you can), have your son or daughter save for that special item. Tell them that you’ll match whatever they come up with. Then they can choose to put a percentage of their allowance or a monetary gift from the grandparents toward reaching their savings goal.
- Open a savings account with your child. Most banks and credit unions offer savings accounts for the under-18 crowd. With a little research, you can find accounts that offer up to a 1% annual percentage yield, as well as no monthly service fees or minimum opening deposits. Plus, with the online tools available, you and your child can track savings progress and set new goals.
- Learn to budget. This is the perfect age to understand how to make—and follow—a budget. Back-to-school, the holidays or planning a weekend family vacation are ideal times to demonstrate budgeting. For example, give your kids a set amount for new school clothes. They can buy whatever they want; but once the money is gone, it’s gone. Your son or daughter may find that they have to make some hard choices about their purchases, or use their own money to make up the difference if they decide to splurge.
- Understand how to spend smarter. Children may not be aware of the many ways there are to make the value of dollar last. For instance, a child who wants a new cell phone may not know that last season’s model is less expensive than the current “it” model. Point out sales or how using coupon codes can help you save on purchases every day.
- Encourage entrepreneurship. Whether it’s running a corner lemonade stand, watering a neighbor’s plants while they’re on vacation or starting a dog-walking service, pre-teens can learn a lot from coming up with creative ways to make a buck. Sure, mom or dad may have to supervise a bit, but being entrepreneurial may spark a new interest for your child that lasts for years to come.
- Introduce investing. If your kids have been regularly building up their savings since they were young, now is the time to show how investing can grow their hard-earned money even more. There are plenty of online tools available that demonstrate the power of compounding interest, understanding risk, and the importance of asset allocation. Or, consider having your teen invest his or her summer earnings in a Roth IRA to experience first-hand the value of compounding interest.
- Talk about smart credit management. It’s a fact that credit rules our lives. And it’s relatively easy for older teens and college students to receive multiple credit offers from department stores, their financial institution or other credit issuer. Teach your teen sooner than later what a FICO score is and how credit usage can impact that score. Another credit management tool is to link your credit card to one for your teen. Monitor spending together and reinforce the importance of paying the balance in full each month to avoid interest charges.
- Allow your kids to make money mistakes. We all make them—no matter what our age. By letting your kids experience the sting of a $35 overdraft charge or a hefty late fee when they don’t pay a bill on time, they become comfortable asking questions and learning from their financial choices. This helps prepare them to seek guidance in the future when they’re faced with making much larger financial decisions.
Of course, the best lessons you can teach your kids about money is through your own actions. Every family handles money differently so there’s no one-size-fits-all approach to financial education. By being open about your values and financial philosophies, you can help your kids develop a solid financial foundation to carry into the rest of their lives.
This Father’s Day, take some time to start the financial conversation with your kids. You’ll be glad that you did. Happy Father's Day!