Ah, children. We know you’re trying your best not to mess yours up, but teaching kids about money is hard. If it wasn’t, this credit card would not even exist. So what do you do?
Kiplinger’s has put together a list of 6 back-to-school money lessons for every stage of your child’s development. Does it work? Well, my parents did this stuff with me and I don’t live under a bridge or anything, so it certainly can’t hurt.
Remember: teaching your kids about how the financial world works is more valuable to them than just giving them money. They’ll thank you when they’re 25 and don’t have credit card debt!
Kiplinger’s Back-To-School Money Lessons:
- Ages 3-5: Big-Picture Years. Keep things simple and don’t expect too much. Encourage kids to put coins in a vending machine or pay the ice-cream man. They can play with fun savings banks, learn the difference between pennies, nickels and dimes, or collect state quarters. The more hands-on the activity, the better.
- Ages 6-7: Time to Start an Allowance. How much to give? Start with a basic weekly allowance equal to half the child’s age. Tie the allowance to “financial chores”—spending responsibilities that the kids take over from you. To make the connection between work and pay, give your children the opportunity to earn money by doing extra jobs such as vacuuming or raking leaves.
- Ages 8-10: Bank on It. Help your kids open their own savings account. Should you require your kids to save? Not necessarily—but you can have them divvy up their allowance into pots of money for spending, saving, charitable giving, even investing. Have your children save toward a goal, whether it’s a toy or a new baseball glove. And you can always encourage kids to save by matching what they put aside—for your very own family 401(k).
- Ages 11-13: Parent Power. As you head into the difficult ‘tween years, remember that parents have power. Kids will listen to you if you have a clear message and deliver it consistently. Expand their allowance money to include more discretionary purchases such as video games and movie tickets. Kids shouldn’t hit you up for 20 bucks every time they head to the mall. Having to chip in their own money puts a natural brake on spending. If you’re an investor, introduce them to the stock market with small purchases of stock through sites such as http://www.ShareBuilder.com and http://www.MyStockDirect.com.
- Ages 14-15: Stick With Cash. Parents should decline prepaid debit cards which banks aim squarely at this age group. Stick with cash. Even at this age, plastic of any kind isn’t as real to kids as money they can see and feel. Expand their allowance to include clothing, concerts and other high-school entertainment. Encourage them to get a job—at least over the summer.
- Ages 16-18 and Into College: Hold the Plastic. Teens don’t realize that a credit card is not free money. They need to know that when you use a card, you’re borrowing from the card issuer, which will charge you a high rate of interest. Cash is still king. Help your kids open a checking account (and get a debit card) so they can learn how to balance a checkbook—either by using a check register or online entry—before they head off to college.
The only thing we’d add is that you should custom tailor this list to suit your child. Janet Bodnar, who wrote the article summarized here, strongly believes that no one should have a credit card until they’re a senior in college, and based on the statistics we read about college students it’s almost impossible to argue. However, if you take the time to really and truly educate your child about the benefits of using a credit card wisely (as in, not ever, ever, ever carrying a balance, etc.) then we think you as parents could consider adding your college student as an authorized user on your credit card so you can monitor their expenses and offer guidance. Maybe even consider a charge card where the balance must be paid in full each month.
Again, you know your kid better than a list does, and if you are a kid and you’re reading this list… Congratulations. Maybe you can use this list to teach your parents about money!
The Last Word on Kids and Cash [Kiplingers]
(Photo: Sa_Steve )
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My parents signed me up for a credit card when I was 16 but kept it (and gave me a debit card to my own account instead). I didn’t get my own credit card to use til I was 23. I think it was an awesome idea on their part as I still got the credit history, but now (7 years later) I am still not in the habit of using a credit card. Basically, if I don’t have the cash for whatever I want to buy sitting in my account, I will not buy it. I use my CC for things like airline tickets etc but thanks to my parents, have never overspent on my card, and pay it off in full every single month.
I’m going to weigh in on this and add that in one of these ages, (if they have a job) opening an IRA or other long term savings vehicle. As a 14 yr old, this may seem odd starting to save for retirement. I’m in the process of opening an IRA. Also, encouage investing. I have had a brokerage account for several months, and am up 27% in 6 months. A good way to encourage investing is to make an offer saying that any profit made investing will be matched when they turn 18.
Credit card during college can be tricky – I got my first during my second year, and ended up leaning on it the next year when I couldn’t make enough at low-paying part time jobs during the year, and took unpaid internships during the summer. My family is extremely frugal and has no debt, but despite my good spending habits & all attempts to keep expenses low, I ended up with some cc debt, which turned into more cc debt, which turned into the paying-off-one-card-with-the-others problem until I realized that really, really serious self-discipline was in order.
5 years later I finally have a great job & got rid of the cc debt, as well as 1/3 of my student loans, but it can be easy to misjudge your options when things get tight. Having good math skills, making a realistic budget, and learning about financial systems (and what affects your credit score) was the most helpful – plus having some loans from friends/family so I wouldn’t get stuck in more debt.
So it ended up being neccessary to have a cc in college (plus I do enjoy having the longer credit history) but it’s been a BIG pain dealing with how minor debt can become more serious.
@waffles: And a credit card is needed to do that?? Really, those lessons should ideally happen at 14 or 15 with a basic checking account. In college, a good part-time job with and a debit card will keep you out of debt and earning your spending money. Parents, if needed to chip in for various things like books, can just make a deposit to your account.