By Paul Golden
Many parents ask the question – whose responsibility is it to teach my child about money? Is it our responsibility as parents or do they learn about money and personal finance in school? The correct answer is – it’s both, us as parents and the school’s responsibility to educate our young people about money. Personal finance education starts with the family and is reinforced in the school - and throughout life.
So how do we, as parents, start the conversation with our kids about money? How young should we start to teach them?
The National Endowment for Financial Education (NEFE) offers the following age-specific tips for teaching your child about spending, saving, and money management in practical ways.
Ages 2 to 4
Introduce coins to your child, helping him or her sort the coins by like kind and explaining the concept of equivalency (e.g., five pennies equal a nickel, two nickels equal a dime).
Give your child a clear jar, instead of a piggy bank, so he or she can see money accumulate and know it is still there.
Play a game of store with your child, using change from his or her jar or your own wallet. Play the part of a customer while your child is the cashier; then, switch roles.
Ages 5 to 7 As your child approaches school age, let him or her handle money on a regular basis so he or she can become comfortable with cash. Depending on your circumstances, you may start providing a small allowance. If you choose to give an allowance, be consistent and set some ground rules.
Establish a set allowance amount. You may consider having it correspond with your child’s age.
Determine whether your child will have to earn it. Do you expect your child to complete a few small weekly chores in exchange for the allowance, or will those household duties be kept separate?
Set expectations for what your child will need (or is allowed) to pay for from that allowance such as snacks, school lunch, outings, or video games.
Be consistent with rules, and pay the allowance on the same day each week.
Let your child learn from his or her mistakes. If your child chooses to spend the entire allowance on the day he or she receives it, point out the mistake without bailing him or her out.
Use the allowance as a tool to help teach money management, not as a method of punishment or reward.
Start discussing the concept of credit and debit cards. Your child surely has witnessed you withdrawing cash at the ATM or using credit cards to purchase everything from gas to groceries. Help your child make the connection that these cards represent money.
• Take your child to the bank when you deposit money in your account.
• Review credit card and bank statements with your child.
• Let your child count the money that comes out of the ATM and review the receipt.
Ages 8 to 10 As your child gets older, he or she undoubtedly will become interested in where money comes from and where it goes.
Explain how you earn money, and discuss how your child might generate his or her own.
Go over your family’s major monthly expenses such as housing, food, and transportation, and explain how much they cost.
Once your child understands the meaning of income and expenses, talk through the difference between needs and wants.
Ages 11 to 13 Preteens often are pressured by their peers to keep up with the latest and greatest. Use this opportunity to be a strong role model and demonstrate for your child how to make smart spending decisions.
Share past spending mistakes and what you learned from them. Consider increasing your child’s allowance as he or she gets older, and help him or her develop a spending plan. Introduce the concept of long-range savings and investing.
Teenage Years High school is a great time for your child to put into practice what you have taught him or her over the years.
Take your teen to the bank to open a checking and savings account in his or her name. Consider adding a pre-paid or bank-secured credit card to help your child establish a credit history and good credit practices while he or she is still under your roof.
Encourage your teen to get a job, so he or she can start managing his or her own income and saving for big tickets items such as a car or his or her college education.
Advise your teen to continue his or her financial education by seeking out classes, field trips, and online resources.