Blog Highlights:
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Parents improve their children's financial literacy by having open discussions about money.
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Establishing early monetary goals and budgeting helps minors adopt positive spending habits.
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Credit card debt continues to drag American families down due to overspending. Help children avoid this fate.
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Candid conversations about savings accounts, budgeting and smart choices prepare kids for success.
In some families, money remains a taboo topic and something never discussed at the dinner table. Guardians may be missing a unique opportunity to teach kids about money. In fact, the American Psychological Association as well as organizations such as America Saves, Kiplinger, and National Public Radio (NPR) agree that teaching minors about money calls for including them in the conversation.
How to Teach Kids About Money
Although discussing household finances may be a touchy subject, it can be accomplished diligently and respectfully without crossing boundaries or private territory. Parents and older family members may want to consider holding a discussion about which subjects to talk about and how much detail to disclose, but candid dialogues about income, budgeting, credit and investment can build financial unity and help guide the decisions of our kids.
6 Essential Family Talks About Money
Talking about money now can help prevent future money mistakes our child(ren) may be able to avoid. Here are 6 essential financial chats you can have with your child today.
1. Saving and Setting Goals
Working with youngsters to establish financial goals proves a motivational money-saving factor. From their first piggy bank to their first Kids Savings Account, the idea of being able to save up for and purchase a prized possession empowers them.
An allowance may be a great starting point to initiate these conversations. Deciding when to start giving children an allowance depends on several factors, including the child's age, maturity level, and a family's ability to do so. Once you start a routine around allowance, discuss what they would like to use their money for and go over possibilities requiring a few months of savings. Make regular visits to your trusted credit union to deposit the allowance.
Teenagers typically begin to have more expenses as their social calendar grows and tastes become more expensive. Saving for a car after they get a driver's license and enough money to attend college also calls for significant financial planning. Teaching them the basic fundamentals of money management with a Teen Checking Account can make a world of a difference when the time comes for them to set out on their own.
2. Budgeting Basics
How can parents instill the most basic budgeting tenet of them all in children under 13: Always spend less than you earn. Although it may seem simple on the surface, American credit card debt reached another high-water mark during the second quarter of 2024. Your youngster does not have to become part of this unfortunate statistic later in life. These are fun and insightful budgeting strategies worth considering.
- "Candy Shop" Budgeting: One of the ways parents can demonstrate the benefits of budgeting is through a reward system. Consider cleaning out a jam jar and making an opening in the lid to insert coins and bills, thereby turning it into a piggy bank. Explain to your child that each time it is full, they can take out a few dollars to spend on candy or some other small prize. The remainder would then be deposited in a savings account for a major purchase down the road.
- Grocery Store Budgets: A complete household budget includes grocery spending. Consider breaking out line items on your shopping list that include produce, breakfast, proteins, beverages and snacks. Explain to your pre-teen that healthy foods are necessities, and then enter the supermarket with a set budget. Work together to manage spending as they experience food budgeting firsthand.
- Excel Sheets for Teens: Create an Excel sheet that lists incoming sources of money, spending and savings areas. When your teenager earns money, input data that tracks it and how it’s being allotted. Categories such as saving in their Youth Savings or Teen Checking, and essential expenses are standard line items.
Budgeting may seem like a complex issue to children and teens at first. As their financial literacy improves through candid talks and activities, they are more likely to grasp ideas such as frugal spending which will help them minimize credit card debt in the future and make smart financial choices that set them up for success.
3. Making Smart Spending Choices
Parents have a wonderful opportunity to educate children about wise and poor spending habits. Building on the spending less than you earn discussion, speak directly to credit cards. People who use plastic and pay off the full balance each month do not incur interest charges. Those who carry balances give away their hard-earned cash and pay a higher price for financing the items they purchased.
Consider using your household budget as a model for smart spending choices. Show the entire family how the mortgage/rent, car loan, groceries, and utilities are prioritized. Explain how going out to dinner, instead of cooking meals at a lower cost, ranks among wants, not needs. It's nice to have little extras like streaming services and gaming systems. But essentials come first and stretching a dollar allows working families to enjoy those niceties without slipping into debt.
4. Understanding Credit Cards and Credit
Young people can get into credit card debt and suffer setbacks that prevent them from securing important auto and home loans. Your kids need to know how and why so many 20-somethings have blemished credit histories that could have been avoided. Explain that problems always start when you spend more than you can afford. The cool new and expensive gaming console is not worth carrying a balance and paying for interest.
From there, buying items you can't afford becomes habit-forming. Once the account gets maxed out, it's not uncommon to miss deadlines, get whacked with late fees, and damage an otherwise good credit history. Tell kids that by spending only what they can pay off in full each month, credit cards can be a useful tool to enhance your borrowing power.
5. Value of Investing for the Future
One of the tougher lessons to share with children involves saving and investing for the future. That's largely because they haven't been around long enough to understand the challenges involved in retirement. Few have personally experienced significant financial hardships, making rainy-day funds somewhat abstract.
Although the value of saving and investing for these and other issues might not resonate immediately, parents would be well-served to plant the seeds. You can circle back and discuss these issues as kids get older and have an opportunity to learn from valued elders.
6. How Kids Can Help With Finances
Families who work together as a team learn invaluable financial lessons and build even stronger bonds. While parents may have the resources to plan and pay for a memorable vacation, why not have the kids participate? Consider opening a savings account for the sole purpose of creating an annual getaway fund. Let them take ownership by saving up for a souvenir.
Children can make a little extra cash doing chores, mowing lawns, babysitting or other odd jobs. Everyone can take a portion of their earnings and deposit it into the vacation account and watch it grow. The larger the balance, the more money you'll have to select a destination and leisure spending. You can also supplement a once-in-a-lifetime family vacation by using a vacation payment plan. After completing a financial planning project like saving for a holiday, smart money management will resonate.
Allegiance Can Help You Teach Your Kids About Money
At Allegiance, we provide financial opportunities for people of all ages, in all stages of life, with unique financial situations. Allegiance's Youth Savings Account (serving ages 0-13) is great building block to help kids learn about their finances. When kids open an account with a guardian in person or online via Video Banking, they become part of the Soaring Eagle Save Club and receive a free gift with every deposit they make! Earnie the Eagle mascot helps kids learn about money and teaches them how to be responsible savers.
If you are looking for more financial resources to help your child become a financially responsible adult, please review our blogs, eBooks and Checklists, and free financial coaching.