If you think the best time to teach your kids about money is when they start getting their allowance, think again. No, it’s not when they start school either. For Susan Hirshman, director of wealth management at Schwab Wealth Advisory, your kid’s money lessons can start between 3 and 4 because “this is the age when they have the ability to make choices and reason.”
By teaching kids about money, you start them on the journey toward financial literacy which is key to financial security. Find out how you can turn everyday activities into teaching moments at every stage of your child’s life.
For 3- to 4-year-olds
Preschoolers learn through play. Play store with your child using play money for goods. This introduces them to the concept of money as a medium of exchange. Another game you can play is coin identification. Let your child trace around the coin and color the shape. Then, let your child match the coin to the image they drew and teach them the name of each coin.
For 5- to 9-year-olds
Jennifer Seitz, director of education at Greenlight, a banking and investing app for kids and teens said, “At an early age, kids are developing their ability to focus and prioritize, as well as understand trade-offs you’re making to choose one thing instead of another.” So, at this age, have frequent money talks with your youngster. When buying groceries, explain to your child how you picked the best price or why you use coupons. This is also best time to teach them how to spend money on needs rather than wants. When leaving for the office, you could talk about the concept of earning and the importance of saving for the future. By having these money talks with your child, you help them gain a positive money mindset as well as an openness to talk about their finances later in life.
For 10-to 14-year-olds
As kids turn into teenagers, they start to want things that exceed their allowance. Consider this an opportunity to teach your tween or teen to save for the things they want to acquire. Help them set a savings goal and create a savings strategy. If they’re saving for a bike, help them figure out how long it will it take them to reach the goal if they set aside 10% of their allowance. Not only will they learn discipline and delayed gratification, but it will also sharpen their budgeting skills as they learn to spend within their means.
For 15-to 17-year-olds
Once your child develops the habit of saving at a young age, you can encourage them to set up a savings account or a retirement account. You could incentivize them to save by offering to match their savings up to a certain percentage like an employer-sponsored retirement plan.
To help them save more, encourage your teenager to get a summer job. As Carrie Schwab-Pomerantz, CFP® professional, president of Charles Schwab Foundation put it, “We know from our research that young people who have jobs are more likely to be better savers in the long run.” However, make sure that your child saves a portion of their paycheck. This could also be a good time to ask them to help in other expenses like paying for their own entertainment or gas.
Apart from saving, teach your teen how to invest. You can open a custodial brokerage account for them or purchase a fractional share of a company. Get them engaged on the performance of their stocks by setting up regular reviews. This will help them track the progress of their investment and encourage them to make financial decisions.
For 18 and older
If your teenager plans to live independently, make sure they’re ready to manage their own money. Start by helping them create a budget reflecting their monthly expenses and income. Make sure they set aside money for savings.
As you child looks into the future, introduce financial tools crucial to their financial well-being like insurance. Explain to them the different types of insurance policies available such as health insurance, life insurance, auto insurance, renter’s/homeowner’s insurance, disability insurance, and long-term care insurance. By informing your child about the financial tools available, you prepare them to be financially responsible and empower them to make positive financial choices.
