Looking back on your own childhood, what did you learn about money and how did you learn it? Perhaps you held part-time jobs from an early age to cover your personal expenses, save for college, or buy a car. Did you have an allowance? Were your parents able to save for a comfortable retirement or did they struggle with finances? Was personal finance a topic of education at school?
Kids take their cues from a variety of sources, including parents, teachers, peers, and media. But while you may think you have 18 years to instill values like the importance of saving early, research shows that children’s attitudes about money may largely be formed by age seven. So, while habits of mind can always be changed, it pays (pun intended) to start teaching your kids about money as early and often as possible.
What’s at stake?
As of 2019, Americans collectively have more than $1 trillion in student loan debt. While not every college student takes out loans to pay tuition, young adults will face consequential financial decisions upon their high school graduation, whether they go to college or enter the full-time workforce.
Once teens turn 18, they can apply for a credit card, a personal loan, or an auto loan. Federal student loans are automatically disbursed based on need and eligibility. While responsible use of credit can help your child build a healthy credit history and a good credit score that will be useful later in life, irresponsible use of credit can be devastating.
According to FICO consumer research, 83 percent of young adults aged 25-34 use credit cards and 31 percent carry a monthly balance of $1,000-$4,999. This shows that at least a third of our youth could use more financial education and help. As a parent, you can’t control your adult child’s financial decisions, but you can do your best to prepare them to make these decisions. Use these 7 tips to help your kids start building good saving habits and money values right now.
- Distinguish between wants and needs.
This is one of the most important personal finance lessons, so teach it early and often. As with all lessons, modeling the behavior yourself will be more persuasive than words alone. For example, the grocery store is a great place to show wants vs. needs. You can say things like, “Our family needs nutritious food to eat, so I’m going to fill our cart with fruits and vegetables first. Then we’ll see if there is any money left for things we want, like ice cream or potato chips.”
- Frame money as a resource with choices to be made.
This is another foundational lesson with plenty of everyday opportunities for application. For example, if you take your kids to a big-box store like Target or WalMart, you could show them your list. “We only have ___ to spend on back-to-school supplies, so I’ve chosen in advance what we’ll buy based on the list your teacher sent home.” When your child asks for a toy, fast-food meal, or any other expense you haven’t budgeted for, you can say “I’m choosing not to spend our family’s money on that right now” instead of “We can’t afford that.” A smart child might point out that you could always use your credit card, but there’s no argument to be made against a firm and premeditated choice.
- Empathize with your child: delayed gratification is hard.
It’s normal for kids growing up in a wealthy country like the U.S. to be surrounded by things they want. From television advertisements to toys they see at a friend’s house, temptation is everywhere. As a parent, you may try to shame or argue your kids out of their material desires, but empathy is usually more effective. It’s also another opportunity to model the behavior you want to see in your kids. For example, the next time your child asks for something, you could respond in the manner of “I hear how much you want that toy. This store is full of nice things, huh? I am seeing ___ that I’d love to buy for myself. However, we didn’t come here to buy ___ and ___ today. We will have to save up for those items and come back another time.”
- Show them where their money is going.
The piggy bank is a timeless childhood staple, but from an educational perspective, a glass jar might be more effective. Personal finance guru Dave Ramsey recommends a clear jar for saving so your child can see the money physically accumulating, one coin or bill at a time. Similarly, financial expert Beth Kobliner recommends giving your child three jars: one for spending, one for saving, and one for charitable giving. This is also a good way to reinforce the “money is a finite resource” lesson and let your child make choices around money from an early age.
- To give an allowance or not? That is the question.
If you type “allowance for kids” into a search engine, you’ll find conflicting advice within the results list. Ultimately, it’s an individual decision for each family whether to provide an allowance or not, how much to give, to tie the money to certain chores or not, add a savings requirement, etc. The best advice we can give you is to think about how to tie an allowance to the lessons listed above, like delaying gratification and viewing money as a finite resource. If you do tie an allowance to certain household jobs for your child, you can teach them the important lesson of how to earn money (i.e. as an exchange of one’s time and labor for a certain dollar value).
- Start Saving with a Youth Account
Once your child has started to think about saving or has filled a jar or piggy bank at home, it’s time to open a children's savings account for them at your local credit union. This will teach them the second way to earn money: from compounding interest. Get your child involved with opening the account by counting the money they already have saved at home. Now they know how much their initial deposit will be, so they can grasp the growth from there. At PCU, all you need to start a youth account is 5 dollars!
- Continue the conversation!
As with any life lesson, learning how to manage money wisely is a process, not a one-time lecture. Keep talking to your kids about how they are choosing to spend and save their money. You might introduce family challenges to turn personal finance into a bit of a game. For example, see who can find the best deal on a certain item online.
Open a Youth Savings Account Today
Saving money is an important step to building wealth and having financial security in your future, and it’s never too soon to start teaching your kids good saving habits. Building good habits when they’re young can help secure your child’s future and will enable them to make sound decisions with their money when they go to college or leave the home. You have a huge part in helping shape these habits, and it’s never too soon to start! As your local credit union, we want to be your family’s financial partner. Open a kids or teen savings account at Palisades Credit Union today.
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