Financial Planning

May 25, 2017 / Hoover Financial Advisors

20 Tips to Help Educate Your Children About Money

By: Susan I. Shiber 

When I was a kid and asked my parents for money, their reply was consistent: What do you want it for? Sometimes I had a specific plan in mind. On other occasions, not so much. One thing for sure, I was always annoyed by the query.

Looking back, I realize the value of having specific goals for money, regardless of age. More often than not, I frittered away my allowance and extra funds, such as the large tins of coins my grandfather gave me on each visit. My irresponsible behavior was the origin of unsound financial management as an adult. This can be prevented if children learn how to be responsible with money when they are very young.

Financial planning lessons can be taught in various ways. Perhaps the most important education is set by example. From tiny toddler to young adult, kids tend to emulate habits observed at home. Mom buys pricey designer shoes, yet makes late bill payments. Dad has multiple bank and finance company loans.

Or … Only affordable purchases are made. Both parents contribute to investment and retirement plans. They set up college funds early on and every member of the family adds to the accounts. A portion of salary and bonuses are set aside for charity. They have an independent financial planner who guides them.

In addition to being positive role models, parents have many teachable options. Countless articles have been written on the subject of raising financially savvy youngsters. Here is a summarized compilation of several recent editorial pieces:

  1. Plant money management seeds early. Children become aware of money and its need and uses as young as age 3.
  2. Keep lessons age appropriate and spiced with stories. Point out how savings can grow and grow until thousands, even millions of dollars are accumulated. Visit consumerfinance.gov and type children’s stories in the search box for some excellent tales to reinforce your point, including Count on Pablo, Lemonade in Winter and Curious George Saves His Pennies.
  3. Be consistent with your message.
  4. Teach them about wants versus need and make sure they realize many TV shows and social media sites depict unrealistic lives of luxury.
  5. Get in the habit of saying no to frivolous requests.
  6. Encourage kids to save money for specific purposes and keep those funds separate and labeled for the purchase.
  7. Be sure young savers realize the ATM machine not only gives money, but amasses it, as well. Show them how you deposit funds.
  8. Help children differentiate between needing something, such as shoes, and wanting the most expensive sneakers on the shelf.
  9. Establish a pattern of making choices, not sacrifices. You may stay home one summer and visit local parks and museums in order to save for a special vacation next year. Take coffee and water to work instead of buying the drinks at an expensive convenience store.
  10. Show kids how you’re planning for the future by putting money aside today.
  11. Help them realize how important it is to pay off the car and mortgage, save for education and pay bills on time to avoid interest and late charges.
  12. Give to others. In addition to treat jars, designate receptacles for charity and stress that a specific percentage of their earnings should be devoted to philanthropy.
  13. Turn off the Shopping Channel. Keep TV viewing to a minimum to avoid buy me ads and discuss marketing tricks to avoid.
  14. Establish allowance ground rules. Start off with a weekly amount and increase it as the child ages and learns how to make his or her money last longer.
  15. Help them decide how to responsibly allocate their money. A suggestion is: 40% for spending; 40% for short-term savings for a new toy or electronic device; 10% for giving; and 10% for long-term savings, such as college or a car.
  16. Take the kids on teaching opportunity field trips. A shopping trip to the grocery store can expose them to how to determine value, such as 20 ounces for $4 versus 40 ounces for $6. Visit a physical branch of your bank so they can see how the system works. They will quickly see it’s not just sitting in front of the computer at home.
  17. When they are a bit older, open a credit card for them and share the benefits of paying the full balance on time.
  18. When your children are adults, consider giving them money to start a Roth IRA or help with a retirement plan.
  19. Open and contribute to a 529 College Savings Plan for grandkids.
  20. Give an annual visit with a financial planner as a gift.

In short, make saving money and being a smart financial planner a joy for children. There is nothing wrong with raising the next generation of Alex Keatons.

Information for this blog was obtained from: How to Raise Financially Savvy Kids by Forbes staff writer Jenna Goudreau; 7 Tips to Raise Financially Savvy Kids by Reader’s Digest editors; and Reuters’ writer Chris Taylor.

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