If you are the parent of a young child, you probably spend a lot of time reading with her. After all, literacy is important. But what about financial literacy? To help your child grow into a financially-independent adult, cultivate solid money management skills that will direct her on the right path to fiscal responsibility.
- Give an allowance. Whether or not you decide to have your child to do chores or otherwise “earn” an allowance, this regular “income” is a useful tool for teaching a child about spending and saving.
- Open a checking and savings account. An account in her own name at your credit union will give your child the opportunity to learn about basic money management, and introduce her to the concepts of saving and earning dividends (interest).
- Let her save up for wants. Distinguishing between needs and wants, and learning to save, are among the most important money lessons you will teach your child. You can teach both by resisting the temptation to simply hand out cash for that new iPod or concert tickets and, instead, helping her set and work toward her own money goals.
- Teach her about working for money. Most adults have to work to earn money, so it’s helpful for children to have a healthy view about the connection between work and money. Young children can do extra chores around the house, while a teen might earn extra cash by babysitting or a part-time job after school.
- Shop with a list. A trip to the grocery store can be full of teachable moments, such as using a list to avoid impulse-buying, reading labels, using coupons, and comparison shopping for different items.
- Cultivate the saving habit with “matching” funds. By matching the dollars your child puts away in savings, you will be encouraging her to save more, while also introducing her to the concept and value of employer matching funds for retirement saving.
- Introduce plastic with prepaid debit cards. Much spending these days is done with plastic credit and debit cards, but you may not want to risk giving a card to your child. A prepaid debit card can be a low-risk means of introducing your child to swipe-and-spend purchases.
- Own up to your mistakes. When cleaning out the garage or basement together, use that opportunity to talk about items that you bought that weren’t great purchases, and why.
- Let her make mistakes. It’s hard to see a child make a foolish money decision, but she will learn more from personal experience and be less likely to make the same type of mistake again later on as an adult, when there’s more at stake.
Finally, remember that your own actions speak louder than any words you speak about money management. By pairing age-appropriate money lessons with consistent role modeling of smart money behaviors, parents can equip their children with the skills to be financially-responsible adults.
To learn more about raising money-smart children, contact BALANCE, a financial education and counseling service provided to you through your credit union.