It’s never too early to start teaching your children about money. Studies show that children are absorbing money habits by the age of 7. Setting a good example for money management at home as well as providing age-appropriate lessons in earning, saving, spending and giving will help you raise financially fit children and build sound financial practices for your child. Don’t wait to begin laying the groundwork. Let Military OneSource help you get started with your child’s financial foundation today.
Money basics for young children
The ABCs of money basics can be introduced to children ages 3-7.
- Teach core math basics with money. Show your child how different forms of currency add up to the same amount of money. For example, a one dollar bill is the same as 10 dimes and one quarter is the same as five nickels.
- Introduce the concept of earning money by starting an allowance. Even at a young age, a child can complete simple responsibilities around the house and earn a small allowance for tasks such as making one’s bed, clearing dishes after a meal or feeding and watering the pets. Whether you pay for a specific task or provide a small allowance for general tasks you expect your children to complete daily or weekly, give them an opportunity to earn a small amount of physical money in order to teach them how to save and spend.
- Give your child a visual way to save. Encourage your children to save their allowance in a glass jar when they begin to earn money for small tasks around the house. Even the youngest of children can set small goals to buy something special. Help your child keep track of savings progress. You can find fun, printable savings trackers online, from gumball machines and money trees to piggy banks, where children can color in their savings one circle or square at a time. Celebrate when your child’s goal is achieved.
- Have your child make purchases with cash. Children make the best direct connection between spending and available funds by paying with cash. Guide your child in making small purchases with the money they earn or receive as gifts.
- Talk about charities and organizations you make donations to and explain why. Begin teaching your child about giving opportunities in your community, such as food pantries, church fundraisers and other local efforts you see.
Money management for the middle years
As your children grow, so will their understanding of math and money.
- Teach the connection that money pays for goods and services. Help them understand that people work in order to purchase goods and services, there are large and small purchases and not all purchases are made with cash.
- Help your child explore different ways to earn money. Teach your child how to increase savings with opportunities such as babysitting, additional household tasks, and yard and garden cleanup, both for you and for others.
- Give your child spending choices. Should we rent a movie or order out pizza? Children learn from making these types of spending decisions.
- Discuss different charities and causes your child may want to support now or in the future. Giving is a fundamental part of spending. Invite your children to begin making donations to organizations they want to support.
- Introduce the concept of compound interest. There are several resources available to help parents explain how debt, and savings, can multiply when interest is at work. Check out tools like the compound interest calculator and these youth-friendly resources at the Consumer Financial Protection Bureau.
Financial lessons for teens
Money management lessons are especially important as your children become teenagers teetering on the edge of adulthood. There are specific skills that will give your children the lifelong gift of financial freedom. Teach them smart money habits before they go out on their own. Here are seven money management tips to get you and your teen started:
- Be open about your family’s monthly income and expenses. Your teen probably has no concept of basic living expenses. Share actual facts and figures with your children to show how you prioritize your spending between “needs” and “wants.” This is also a great time to start the discussion about how to pay for postsecondary education. Discuss how tuition and other school fees stack up against scholarships, financial aid, loans, your teen’s employment income and family savings.
- Help them set up a bank account. Once your teen has a job and is receiving regular paychecks, it’s time to open a checking account. Talk to them about picking a bank, discuss the responsibility of having a debit card and show them how to use online banking tools to check their account balance regularly. Discuss the portability of the checking account between installations, if your family expects to move.
- Review monthly statements together. Your teen may not realize they’re spending $50 a month on junk food, but those $1.50 purchases can really add up. A review of monthly statements can be a great way to point out spending patterns and discuss money management.
- Show the impact of savings. If there’s something your teen wants to buy, whether it’s small, like concert tickets, or big, like a car, sit down and make a savings plan together. Figure out what amount they’ll need to save over how many months to reach their goal. Encourage them to set a monthly savings goal.
- Discuss how to make smart purchases. Even if your teen knows exactly what he or she wants, show him or her how to do a cost comparison, read product research and check consumer reports. He or she might figure out another choice is a better value.
- Start out with small monthly expenses. Giving your teen a little financial responsibility each month can help create purposeful spending habits that will serve her or him well later in life. Whether it’s gas, their cell phone or even just a monthly music or movie streaming service fee, this can be a great teaching tool.
- Teach your teen about the rewards and dangers of credit cards. To an unprepared teen, the first credit card can feel like a license to spend. Help her or him to understand the advantages of building good credit while also explaining the risks of acquiring credit card debt. Revisit the concept of compound interest and how interest fees can multiply rapidly.
- Teach your teen about identity theft. Your teen should guard credit and bank information and only provide account details to a trusted source. Information should only be shared electronically if it is encrypted or password-protected. This information includes your child’s bank account numbers, credit card numbers and social security number. If at any time you or your child suspects fraudulent activity, report it immediately. You can also place a credit freeze on your child’s social security number to stop identify theft after suspicious activity.
- Teach your teen how to file taxes. Part of the rite of passage for that first job is learning how to handle income taxes. Teach your teenager how to understand deductions and keep track of pay statements and how to enter the information from their annual tax statements onto tax forms or into tax software, such as MilTax.
Remember that money management is a learning process full of teachable moments and, inevitably, a few setbacks. Budgeting isn’t easy, but your child will be grateful to have financial planning skills once he or she has to do it alone. Start young. Lead by example and put your resources to use. Tap into resources through the Office of Financial Readiness or schedule a free financial counseling session with Military OneSource by calling 800-342-9647. Help your children practice good money management skills throughout their growing years, and watch as they transform into budget-conscious adults.