At some point, most of us had to learn how to write a check, pay bills, apply for a loan, and use credit cards wisely. It’s practical money management advice you can pass on to your children before you send them out into the world. Here are a few basics to help you get started with this important task.
Start teaching money management as soon as your child understands money. Don’t simply give your child money. It loses value when it comes easily. Instead, create a list of chores and pay them for the work they do. They will quickly learn the relationship between earnings and work.
Have the “money talk” before your child lands a part-time job. Kids tend to live in the moment, so a paycheck often gets frittered away on “wants”, not needs. Before your child starts earning money from a job, discuss money management basics so they are prepared when that first paycheck is received.
Teach your children the basics of handling bank accounts. Tracking cash is one of the most important lessons you can teach your kids. Pass on the basics to help your child avoid overdraft charges and other consequences of bad money management. Older children and teens are likely to use debit cards for day-to-day expenses, and it’s easy to overdraw an account if you don’t keep a record of your spending. Help your child set up a simple system of recordkeeping. Then track spending and saving to see where the money goes.
Help your child open a savings account and put money in it for specific goals. Establish the habit of putting at least 10 percent of any gifts or earnings in a savings account right away. Saving a certain percentage of your income before you’re tempted to spend it is what financial advisors call “paying yourself first.” Give your child a reason to save as motivation to put aside a little each payday. They can save for short-term expenses like a school trip or larger expenses like a car. Your child can even contribute to a section 529 account – a tax-sheltered savings account to help pay for college expenses.
Help our kids automate savings. Once your child starts earning a paycheck and depositing it into a checking account, talk to your banker about automating their savings with regularly-scheduled transfers from their checking account to a savings or money market account. Make it simple and painless to save, and your child may save more.
Teach your child about credit cards. At some point, your teen may want a credit card, but it’s easy for teens to get in over their heads using credit cards to make routine purchases. A good rule of thumb? If the item you charge to your card will be gone before the next statement arrives, don’t charge it. Charge cards are a temptation for adults. Imagine how a teen feels using the power of plastic for the first time.
Teach your teen the basics of borrowing money: Make sure your teen knows that when they take out a loan, they generally will have to repay the money monthly and pay interest. Explain what Annual Percentage Rate (APR) means and how it can affect the total amount paid. And, the longer it takes to repay a debt, the more they will pay in interest. Explain that missing a loan payment may generate fees and make it harder to borrow money at affordable rates in the future.
Take precautions against fraud and identity theft. Because so many transactions take place online, an important part of money management is helping prevent fraud and identity theft. Make sure your child knows how to help protect their Social Security number, PIN, or internet passwords from prying eyes. Explain about phishing schemes and other attempts to get private information, and show them how to check their credit report on a regular basis to spot any unusual transactions.
Set a good example. Finally, kids learn from their parents, and they will learn bad habits just as quickly as good money management practices. If you respect the hard work it takes to save for the future, your child will learn those values from you. Conversely, if you waste money and are chronically drowning in debt, your child will come to believe that’s normal. Bad money management habits can start early, so set a good example for the kids.
You can’t expect your child to manage job earnings, an allowance and other income without some basic training. Teach your children the value of a dollar. It’s a lesson they’ll thank you for many times in the years ahead.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC