Teaching basic money management skills to children is critical. Teens spend more than $170 billion a year, according to Teenage Research Unlimited, yet fewer than half know the basics about credit, checking, savings accounts, or auto insurance. Teach your children to become regular savers and responsible borrowers now, so they’ll be prepared when they are out on their own. Here are some suggestions to get started Younger than age 5
- Use coin banks to help children learn how to identify coins and count money.
- Introduce the concept of money by giving children small change to spend occasionally when you go to the store. Limit options to save time and reduce conflict.
Ages 5 to 10
- Give a weekly allowance to offer hands-on money management experience. Because children know they’ll regularly get a set amount of money, this makes it easier to learn how to save.
- Let children save for, and buy, something they really want. Rewards reinforce your children’s savings habits, so tie savings to spending.
- Use three containers labeled “Spend,” “Save,” and “Share.” Suggest that children contribute a portion of their allowance and cash gifts to each to teach how to spend wisely, save regularly, and give to others.
- When the “save” container builds up, take children to the credit union to open a savings account.
- Provide opportunities to earn extra money by doing jobs not included in regular responsibilities.
Ages 11 to 14
- Include children on shopping trips to teach them what things cost and smart shopping techniques. Let them help compare product qualities, prices, return policies, and warranties.
- Encourage odd jobs: babysitting, yard work, or pet care.
- Encourage children to use their own money to buy beyond-the-basics clothing and accessories.
Ages 15 and Older
- Discuss savings plans for long-term goals, such as education and cars.
- Consider giving teens a seasonal clothing allowance, beyond their regular allowance. After setting guidelines and limits, let them make their own choices.
- Consider helping financially responsible teens open a share draft/checking account.
- Consider encouraging financially responsible older teens to use a credit card.
- Allowance amounts depend on several factors: age, maturity level, interests, responsibilities, and the family’s financial situation.
- At the beginning of each school year, sit down with children to discuss the allowance. Decide what things the allowance will cover. For example, older children may be responsible for paying for school lunches, transportation, and entertainment out of their allowance. Include some money children can spend or save for anything – within limits, set during the allowance meeting.
- Let children make decisions and mistakes with allowances. Don’t give more money if they overspend.
- Put the allowance agreement in writing; the amount, the day given, what it covers, and any restrictions.
- Review and adjust the allowance agreement regularly to keep up with children’s changing needs and current costs.
Money as reward / penalty
- Don’t link allowances to routine chores. Children help around the house because they’re members of the family; they get an allowance to learn how to handle money. Linking the two may result in children who won’t do anything without pay, or children who decide the money isn’t worth the work.
- Don’t link allowances to behavior – it confuses the issue and can become a source of conflict and manipulation.
- Don’t use money as a bribe for good behavior; you may end up with children who only behave for pay. It’s OK to reward children for courageous or especially good behavior, if money or gifts are given after the fact.
- Avoid paying for good grades. Children should do well for themselves and learn to set and achieve their own standards. It’s also unfair to children who work hard but are unable to attain high marks.
Money and the family
- Include children in family money discussions. Without revealing all the details, give children a sense of your financial position and a statement of your family values, so they can understand boundaries, guidelines, and priorities.
- Invite children to help when paying monthly bills. Discuss your family’s money-management philosophy.
- Have a family meeting to choose a family treat or trip to save for. Discuss ways each family member can help reach the goal.
- Consider paying children for extra jobs around the house that you would hire someone else to do. Make it clear that it is a job – not a family responsibility. Explain the job, offer fair pay, and allow the child to say no.
Teach smart spending
- Discuss and establish age-appropriate guidelines for purchases. For example, even though children may earn enough money from a job or gifts, certain purchases may be forbidden, such as vehicles or dangerous toys.
- Organize shopping trips to buy things children want or need. Help them comparison shop and make decisions based on price, features, and quality. Share your expertise with children, but whenever possible, let them make the final decision.
- Encourage children not to spend on impulse. Have them consider if they really want or need the item right now, and how long it took to earn the money they’re about to spend.
- Allow working teens to spend their own money. However, require them to pay for more of their expenses to prepare them for going out on their own.
- The most important thing to teach children is to pay themselves first. Help them pick an amount to save regularly.
- Consider matching amounts children put in their savings accounts.
- Teach older children concepts such as compound interest, safety, and liquidity.
- Help young children set goals they can reach in a few weeks. Hang up a picture of an item to save for on the refrigerator or bulletin board; set up a calendar and container for money.
- Help older children and teens set goals using a savings account and longer time frames. Make sure savings goals allow them enough spending money to enjoy themselves while sticking to their savings plan.
- Discuss ways to earn and save money.
- Allow children to withdraw money from their savings accounts for appropriate reasons to demonstrate the purpose of saving.
- Encourage teens to build an emergency fund for unexpected emergencies – like car repairs.
- Encourage children, by example and discussion, to give of their time and money. Help them plan gift giving to family and friends and donations to charitable causes.
- Keep a giveaway box in children’s rooms for out-grown clothes, toys, and books. Take children with you when you make donations.