Knowing about financial skills is important in our everyday life, schools are not teaching children about money. But you as a parent, we can teach our child about important financial lessons.
Many families lost their homes at the mortgage crisis. There are 3.9 million foreclosures. We owed $1.1 trillion of money in student loan debt. We also owed $845 billion in credit card debt. According to Beth Kobliner, author of New York Times bestseller, Get a Financial Life, and a member of the President’s Advisory Council on Financial Capability who leads the creation of Money as You Grow, it is obvious that adults don’t know much about money. The next generation must be taught about the essentials of money to help them avoid the mistakes of their elders. Like getting a personal loan, business loans or any other loans but ended up not paying it properly. It will also help them to live financially fit lives. She also offers lessons about money depending on the children’s age.
She also stated that even children age as young as three years old can learn about financial concepts like how to save and how to spend money. Kids with the age 7 have money habits already as reported by the University of Cambridge commissioned by the United Kingdon’s Money Advice Service.
We as a parent is the number one influence on our children’s financial behaviors, so let us raise a generation of mindful savers and givers, consumers and investors.
Here are top money lessons and activities that we can teach with our child according to their age
The lesson: You should wait first if you want to buy something you want.
Kobliners said that, this is a hard concept for people to learn of all ages. But, delaying gratification can have the ability to predict how a grown-up kid can be successful. We should teach them that if they really want something, waiting and saving money before buying it is recommended.
Kids should also learn that it doesn’t mean that if they are in a store, they are allowed to buy something for them. For example, If they want to buy something, you would say that we don’t have money for that, but if they insist, you should tell them the reason why did you go to the store at the first place, it is not to buy something for them, it is about buying some gift for someone not for them.
When your child is going in a line, say to them that they should wait. It is important to discuss them waiting for what they want.
Create three jars and label them “Saving”, ”Spending” and “Sharing.” Every time your child receives money, they should divide the money equally among jars. Have them use the spending jar for small purchases like stickers and candy. Sharing jars are for someone they know who needs it or to donate for a friend’s cause. The saving jar should be for more expensive items.
If your child wants to buy a toy, have them set a goal. Just make sure it is not that pricey and they can afford it for months. You want to set them up for success. Come up with a matching program if your child does have an expensive goal. It is to help them reach it in a reasonable timeframe. An allowance is a personal choice for every family, even if at this age, a small allowance can help a child for these goals.
Help your child to count their money every time they add money to the saving jar, help her count and tell them how much they need to reach the goal and when they will reach it. It is fun for them and they will learn the importance of being patient in waiting and saving.
Lesson: The need to make choices about how to spend the money.
Explaining to your child at this age about how finite money is and how important it is to make wise choices because if you already spend your money, you don’t have more to spend. Continuing the activities like the saving, sharing and spending jars and goal setting, engaging your child in a more adult financial decision making is important.
Teach your child about different financial decisions, for example, choosing to buy cheaper shoes like the branded ones. Or buying the branded one. The cheaper one is less 100 bucks than the branded one but the same quality. You can also talk about deals like buying in bulk to get a cheaper per-item price.
To give them the experience of making choices with money, give your child money, for example, $2, when you’re in a supermarket have them make the choices on what dessert to buy with the money that they have.
Talk about the financial decisions like asking questions like, “is this something we really need or just want to?” “Would it cost less in other stores?”
Lesson: The sooner you save, the faster your money can grow from compound interest.
You can shift from the idea of saving for short-term goals to long term goals. Introducing the concept of compound interest to them when you earn interest to both on your savings as well as on past interest from your savings.
Describe compound interest using specific numbers, for example, if you save $100 every year starting at the age of 14, you’d have $23,000 by age 65, but if you start at 34 you’ll only have $6,000 by age 65.
Here is a website for some compound interest calculations. Investor.gov. So that they can have the idea of how much they will earn at a specific age.
Setting a longer-term goal for more expensive than the toy she may have been saving for. At this age, they are trying not to save because they want to buy stuff. Having them to give up these things is a good decision.
Lesson: Consider how much each school would cost when comparing colleges.
When visiting at a college website, search for a net price calculator to know what is the price including the tuition and other expenses. But don’t let the price discourage your child. Explain to them how much college graduates earn than the ones without a degree. Consider that it is a future investment.
Parents should start the college costs conversation by ninth grade. Talking about it early and being honest with what your family can afford will help kids be realistic to the school they will apply. There are also many ways to support your child’s college than with your own money. Other private schools are generous with financial aid. They have grants and scholarships and other student loans that your child will have to pay back and what government programs can help them pay back those loans.
Using this College Scorecard, compare how much each college costs and how much the student loan debts affect them after their college. You can use this to estimate your financial aid using FAFSA4caster tool at fafsa.ed.gov. Use calculators to estimate monthly loan payments on studentaid.ed.gov. Find out about loan repayment options such as Pay As You Earn, it limits your monthly payments to 10% of your discretionary income.
Having your college child with a part-time job can actually help them in the long run. According to Kobliner and Dr. Gart R. Pike of Indiana University-Purdue University, Indianapolis students who work 20 hours a week or less at on-campus jobs get better grades because they are more engaged in student life.
Lesson: If you can pay the balance off full each month, you should use a credit card.
It is easy to slide your credit card but it could give your child the burden of paying off credit card debt and student loans at the same time. It could also affect their credit history. This could also make it difficult for them to buy a home a car or even for applying for a job.
Teach them that if their parent cosigns on a credit card, late payments could also affect their parent’s credit history. Look for a credit card that offers a low-interest rate and no annual fee using sites like Bankrate, Credit.com, Creditcards.com or cardratings.com.
You should also explain to them that it is important not to charge everyday items so that you will have an emergency expense that you can’t cover with savings. Much better if at least three months building up the worth of living expenses in emergency savings through 6 to 9 months is ideal.
Cover Photo Credits:OneFamily