Making financial education a priority early on will help kids better manage their money in the future, setting them up for a more financially secure adulthood
American Consumer Credit Counseling says it is essential for children to start learning about finances early so they are prepared to make informed financial decisions in the future.
According to a recent study on Personal Finance, one out of three parents is more comfortable discussing drugs, smoking and bullying with their children, rather than money. With only six states in the country requiring financial education testing in high school, it’s up to parents to make sure their children are properly educated in personal finances.
American Consumer Credit Counseling provides parents with some core financial concepts for kids of all ages:
1. Where money comes from: When a parent swipes their credit card or takes money from the ATM their child may not understand that money has to be earned by working for it. A great way to teach this concept is by helping kids set up a bank account and have them work for the money that goes into it – by doing chores around the house, or for teens, babysitting, tutoring or leading recreational activities. However, it’s important to delineate between their obligations as a member of the household, and chores that will help them earn allowances.
2. Spending money wisely: Everyone has a limit to the amount of money they have to buy things they need and want. Because of this, it is important to make smart choices when choosing how to spend these limited funds. To teach this concept, parents should have their child make a list of items they need and rank them in order of importance. Next, add an estimated cost for each item. This will help them make smart choices when spending money.
3. Saving money: Saving is the best thing a consumer can do with their money. Once a child understands the importance of spending wisely, it is time to teach them about saving their money. This can be done by setting goals with savings – such as saving for a new toy or game the child wants.
4. Credit Cards: It can sometimes be hard for children to understand how credit cards work and that it is not free money. For kids under 18, have them practice using credit by borrowing money from parents. Set up a credit limit, repayment terms and a standard interest rate to familiarize them with these concepts. If they miss a payment, don’t hesitate to charge a small late fee. This will help teach them the cost of credit and the habit of paying on time. It will also help them learn the basics of credit before mistakes can harm their actual credit report and score.