A basic financial life skill is knowing how to live within your means â€“ something that schools donâ€™t teach. The live-now-pay-later lifestyle is alluring, with credit card companies targeting adults of all ages, starting with college students.
Itâ€™s all too easy for young adults to max out several cards and paying the minimum each month until theyâ€™re in so deep they have no choice but to file for bankruptcy. Perhaps if parents can teach their children, starting at a young age, how to successfully manage money, the danger of living beyond their means could be prevented.
Here are financial lessons you can teach your children to help them form sound money management skills they can carry into adulthood:
Preschool, Ages 3 to 5: Sometimes You Have to Wait
Desires of preschool kids are often easily granted and parents donâ€™t think twice about grabbing that coveted toy as they wheel their carts and kids around the discount store. The lesson the child may be learning, however, is that you can always get what you want â€“ no problem.
Try this, instead, to teach them the value of learning to save for what they want: Create three jars, each labeled Saving, Spending or Sharing. Each time the child gets money â€“ as a gift, from doing chores or from a weekly allowance â€“ help them divide the money equally among the jars.
The spending jar is for small purchases like stickers, an inexpensive book or a small toy. The sharing jar is for teaching the reward of donating to a worthy cause, like a favorite charity, or to a friend in need. The saving jar is for purchases that cost more and that are worth saving toward, like an electronic toy.
Each time the child adds money, count how much is in the jars and talk about how close they are to reaching a savings goal. This easy routine helps teach the value of patience, the reward of reaching a financial goal and the joy of sharing. Great lessons to learn at this young age.
Grade School, Ages 6 to 10: Understanding Spending Limits
Kids this age are closely tuned into their parentsâ€™ spending habits. Maybe your family is prone to splurging on luxuries like a big vacation every summer or buying a new car every couple of years while you go into deep debt. It is a highly visible lesson to kids this age that living large is more important than being financially responsible.
Itâ€™s far better to level with kids than to give them the signal that theyâ€™re entitled to the very best of everything that money can buy. Even when the desired purchase has an attainable price tag, if it doesnâ€™t fit into your budget, tell your child they have to save for it or give up another item on their wish list.
Pre-teen, Ages 11 to 13: The Pleasure of Earning
At this age, kids can take on more responsibility around the house. Chores such mowing the lawn, vacuuming, taking out the trash, doing their own laundry, loading and emptying the dishwasher, washing the car is a great way to get kids to help around the house. Rather than giving them a set allowance just because theyâ€™re a member of your family, give commissions based on chores they accomplish. Negotiate reasonable rates for various tasks, have them keep business-like records that you sign off on and pay weekly.
Allow them to spend a portion of their earnings, save some and share a percentage with a charity. Help them monitor their decisions about what to buy. Remind them purchasing a pricey piece of sports equipment now may mean they wonâ€™t be able to afford that new jacket until they can save for it.
High school, Ages 14 to 18: Transitioning Into the Real World
Kids ages 14 and 15 can earn money by working for people outside the family â€“ mowing, babysitting, raking leaves, clearing snow. Once they start earning money on their own, itâ€™s time to help them open their own bank account, raising their money management skills to a higher level. Guide them through the process of promptly balancing a checkbook. Help them start a savings account for college and other future financial needs.
Kids 16-18 are in high demand for jobs in food service, retail and other service industries. They can work some limited evenings after school, weekends and during all of those long school vacations. Help them monitor their spending and saving habits as they learn to manage money on their own.
Older teens are targets for credit card offers, with several arriving in the mailbox weekly. Make it clear you will not cover any of their credit card payments if they choose to accept a card. Caution them about the extreme danger of running up credit card debt while they are still students. Advise them to ignore those unsolicited offers. Small actions will form a strong habit of living within their means.
Young Adult, Ages 18+: Managing Money and Life on their Own
Before your young adult child strikes out on their own for college or to start a career, make sure to review all of the money lessons youâ€™ve been working on during their growing-up years:
- How much money they have and how to access it.
- How to read a bank statement and balance their account.
- How to set and maintain a budget, so they can cover monthly expenses.
- How to separate wants from needs â€“ cover the essentials of living first; save some money for an emergency; then use discretionary income wisely.
- How to read the fine print and between the lines to understand offers for credit cards, debit cards and loans, so they know what the true costs will be.
- How to build a positive credit history by paying bills on time and keeping the number of credit and debit cards to a bare minimum.
- How to save money for an emergency â€“ car or home repair, a period of unemployment, needing to move, etc.
- How to take nothing for granted. A degree from the right school does not guarantee a great, high-paying job. A great high-paying job may not last due to circumstances they canâ€™t control or change.
- How to ask for help when life hands them an unexpected turn for the worse and they need a temporary safety net.
We canâ€™t teach our kids everything they need to know about money to be successful, productive adults. Some lessons can be learned only through experience and most likely by making a few gut-wrenching mistakes. But by giving them basic financial tools before they reach adulthood, theyâ€™re more likely to make smart choices and to quickly recover if things get a little out of control.
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