Disclaimer: This post is sponsored by PSECU, a Pennsylvania-based credit union.
Many parents erroneously believe that good money management skills develop after their kids leave the nest and have bills to pay. But psychological research indicates that children begin forming financial habits not too long after learning to talk, and by the time the littles start second grade, their attitudes toward money have become ingrained.
Given the early age at which kids begin developing attitudes about spending and saving, parents of any means do well to begin discussing money matters shortly after potty training is finished. Children who understand the value of money tend to save more and have healthier financial attitudes throughout life. Teaching them the value of a dollar early helps them make solid economic decisions for a lifetime.
Different Money Stages for Different Ages
Obviously, explaining economic realities to children takes different techniques at age 8 than age 18. That said, kids of all ages respond to basic financial lessons in concepts such as opportunity cost.
Start small and start young when it comes to teaching the little ones what money means. Younger children may lack the ability to visualize large dollar amounts, but nevertheless understand that they can buy a chocolate bar when they have a dollar in their kiddie purse but cannot when their pockets hold nothing but lint. Teens benefit from lessons in how to handle credit responsibly as they prepare to head off to the university and must budget for tuition, housing and books.
Follow the tips below to find age-appropriate ways to start children on the path to financial literacy.
1. Teaching Children Younger Than Seven
Younger children risk falling prey to the money-grows-on-trees mindset when they’re raised in households of plenty. Conversely, children raised in homes where economic insecurity leads to lack tend to associate money with painful emotions. Children raised in extreme poverty where homelessness and food insecurity proliferated can develop PTSD from constantly finding their most basic needs unmet.
Use piggy banks as starting points for discussions about money. Use multiple piggies or simple mason jars labeled for disposable spending, savings for large purchases and savings for long-term goals.
Play dates can provide another way to teach financial literacy, even if parents lack the means to provide their youngsters with an allowance. When they’re waiting to take their turn playing with a coveted toy, for example, use it as a teachable moment to discuss how waiting now can lead to bigger rewards later.
2. Growing the Knowledge of Those Aged 7-12
Children in elementary and intermediate schools have met peers born into families with diverse economic situations. Teaching money matters through play can help grow financial literacy skills.
As children begin to develop future career aspirations during this age, use their natural play tendencies as teaching tools. Playing supermarket cashier with a toy register can help youngsters learn to budget for the family’s nutritional needs. Kids who enjoy playing school can benefit from a virtual shopping trip to select supplies to stock their classrooms.
3. Transitioning Teens to First-Time Jobs
Around age 12, some children begin developing the maturity necessary to take on small jobs and earn their own cash. Examples of tasks kids can perform for money include completing basic administrative jobs for work-at-home parents, babysitting younger siblings for short periods and cutting a neighbor’s lawn. Even children in families who can provide for all their wants benefit from taking on work to reinforce thoughts about the value of a dollar.
Parents of children in this age range can utilize prepaid debit cards to teach the fundamentals of credit management. Kids learn more from making their own mistakes than from listening to a thousand lectures, so allow youth the opportunity to make money mistakes now when consequences matter little. This process trains them to recognize the importance of balancing saving with spending down the road.
4. Preparing Children for College
As teens enter high school, most become ready to accept more intense financial lessons. Parents can involve teens in discussions of how to pay for higher education through scholarships, grants, loans and savings. Threatening children often backfires and causes rebellious behavior, so keep these conversations positive instead of punitive. Instead of reading Junior the riot act over a less-than-spectacular report card, calmly sit down and discuss how the matter may impact future prospects.
Teens likewise benefit from access to small amounts of credit, which teaches them not to take on more debt than they can comfortably manage monthly in payments. Likewise, allowing those approaching the driving age to save for their own vehicle teaches them far more than simply buying them a car or handing down an older one.
5. Enabling Young Adults to Fly
The ultimate goal of financial literacy is allowing children to survive on their own regardless of the current economic climate. Before your precious babe signs the lease on their first apartment, make sure they have a solid understanding of what they’ll be responsible for affording solo.
Teaching young adults the consequences of eviction or missed utility payments gives many parents stomach butterflies. However, instructing those leaving the nest about how certain money moves can help or hinder their future economic security proves easier to digest than having their 40-year-old returning to live in their basement.
The most important thing for young adults to learn is how to create and maintain an emergency fund. Far too many find that financial disaster means putting unexpected expenses like car repairs on credit cards only to pay exorbitant amounts of interest by making only the minimum payment. In addition, having enough set aside to handle six months’ worth of expenses helps stave off disaster should corporate layoffs or downsizing reduce future income.
Building Lifelong Financial Literacy
The attitudes and habits children develop in their formative years remain with them for a lifetime. Parents have a sacred duty to provide their offspring with the tools necessary for survival, and in western society, that includes financial literacy. Teaching solid money management to kids today grants them a more secure future tomorrow, so don’t wait.