Have you talked to your kids about money? Beyond the explanation that it doesn’t grow on trees? Kids need to learn the value of a hard-earned dollar, but they should also learn how to save, spend wisely, be charitable, pay taxes, invest and eventually become financially stable. The earlier they start on a path to financial literacy, the better off they will be. Here’s a timeline of recommended money lessons for children as they age.
Age 3 to 5
The pre-school years are a great time to start teaching kids how to identify the names and values of different coins and bills. Counting coins can also help with math skills: one nickel is equal to five pennies, five nickels is equal to one quarter, and so on. Discuss the value of money: You need it to buy things, you earn it by working, and there are limits to what you can spend. A piggy bank should help get your child interested in saving. Use it to teach impulse control and patience. Set a savings goal and bank whatever money comes into the child’s life, counting it often to demonstrate how it grows. Once the goal is reached, you can let your child do a little shopping.
Age 6 to 10
Elementary school-age kids will start to become more interested in money, and you may start offering an allowance. This is also a good stage to introduce the concept of budgeting. Encourage your child to divide her money into categories: save, spend and give. Children really embrace the concepts of charity and volunteerism. Get them started thinking about how they can make a difference in their community or for a greater cause. If the piggy bank is nice and full, consider taking your child to open a savings account. Most major banks and credit unions offer savings programs, educational information and even online tools and apps for young bankers. Just make sure you find an account with a low minimum balance and low or no fees (you may avoid fees entirely if the account is attached to your checking, for example).
Age 11 to 14
As your child matures, so should your discussion of financial topics. This is a good age range for kids to start thinking about being a wise consumer, looking for quality and value in things and viewing advertising more critically. These are also the years when a child can start to learn about the stock market and investing. Really ambitious kids who want to start investing can even find mutual fund options for young savers.
Age 15 to 18
These are the first-job years, which means first checking account and maybe even the first time your child pays income taxes. Kids should learn the concepts of gross pay vs. take-home pay, balancing a checking account and using credit wisely. If they are getting ready for college and looking at financial aid options, talk to your child about student loans and what it means to take on long-term debt.
Age 18 to 21
You may no longer have sway over what your child does with his or her money, but if they still listen to your financial advice, talk to them about coming money decisions. Offer advice about getting the best terms when refinancing student loans or looking for a first mortgage. Explain how the right health insurance, auto insurance and even renter’s insurance can provide a valuable safety net. Most importantly, encourage 401(k) participation. The earlier your child starts to save tax-deferred dollars, the more quickly the funds will grow.
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