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It’s never too early to start teaching your children about money. In fact, according to the 2013 study at the University of Cambridge, children absorb and establish money habits as early as age 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.
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Experts from the Office of Financial Readiness provide service members and families with the training and education to help you achieve financial goals.
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. In addition to using physical money for these lessons, apps like the National Credit Union Administration’s World of Cents help young children learn the values and interchangeability of coins and dollar bills. Consider watching these age-appropriate videos with your young child that introduce the concepts of making money, spending money, understanding the costs of products and saving.
- 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 general tasks you expect your children to complete, give them an opportunity to earn a small amount of physical money. This will help teach them how to save and spend. There are numerous apps targeted to young children which will help them track household chores and earnings by week or by chore.
- Give your child a visual way to save. There are a number of physical and electronic ways to track savings. 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. Have a tech savvy child? Money management apps targeted to young children can help them track household chores and earnings, as well as show savings progress toward a desired purchase. Parents can share these apps from their electronic devices. When children achieve their savings targets, be sure to celebrate their discipline and patience in waiting to attain their goals.
- 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. If children receive gift cards to spend, show them how much the gift is worth in physical money so they have a greater understanding of the value.
- Talk about giving back to your community. All spending is made up of choices, including donations. Begin teaching your child about giving opportunities in your community, such as food pantries, church fundraisers and other local efforts you see. If you have been financially able to give to charities and organizations, explain why you have chosen to make these donations of time and money.
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. In fact, many purchases can be made with a click of a button or tap of a card. Consider watching these age-appropriate videos with middle school children that introduce the concept of earning and saving money.
- 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 you rent a movie or order out pizza? Should you eat out or cook at home? Children learn from making these types of spending decisions. For accounts linked to your credit card, such as streaming services and other apps with in-app purchasing options, be sure your children understand that any purchases should be discussed beforehand.
- Introduce your child to debit card purchases. You can introduce children to debit purchases by using prepaid debit cards or apps that allow you to view and manage the balance. This is a great first step to prepare preteens and teens for using debit cards tied to their personal bank accounts.
- Teach your child to balance a budget and pay monthly bills. Having your children earn income for household contributions and participate in paying small portions of their leisure expenses is a great way to teach them about recurring monthly costs. You can do this real-time with allowances and household costs, like contributing small portions toward Xbox or other gaming and streaming fees, or you can explore phone and tablet apps that give children credit points or money for household chores or allowances and debit their accounts for monthly “bills.” Your children will be well on their way in learning how to set and manage monthly budgets.
- 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 teens and young adults the lifelong gift of fiscal know-how and 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. The Consumer Financial Protection Bureau offers a number of how-to guides related to understanding banking options, opening an account and protecting your personal information. Talk to teens about picking a bank and show them how to use online banking tools to check their account balances regularly. Discuss the portability of the checking account between installations if your family expects to move.
- Teach teens how to manage debit card use. Discuss the responsibility of having a debit card. Debit card purchases are easier than ever, and it’s important to help your teen be aware of spending habits. Banking apps are a convenient way to keep track of balances on an ongoing basis. Help your teen budget and balance expenses throughout the month as well as track how earning and spending habits align with short- and long-term financial goals.
- Review monthly statements together. Your teen may not realize $50 a month is being spent 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 would need to be saved over how many months to reach the goal. Encourage setting a monthly savings goal. You can watch this video aimed at helping teens earn and save money as a foundation to building a savings plan.
- Discuss how to make smart purchases. Even if your children know exactly what they want, show them how to do a cost comparison, read product research and check consumer reports. They might figure out another choice is a better value. As teens earn money and learn good spending habits, it’s important to teach them how to make SMART goals.
- Start out with small monthly expenses. Giving teens a little financial responsibility each month can help create purposeful spending habits that will serve them well later in life. Whether it’s gas, their cellphone or even just a monthly music or movie streaming service fee, this can be a great teaching tool.
- Teach teens about the rewards and dangers of credit cards. While teens must be at least 18 years old to sign a credit card contract, the Credit Card Accountability Responsibility and Disclosure Act of 2009 makes getting an unsecured credit card even harder for young adults under 21 years of age. To unprepared teens, the first credit card can feel like a license to spend. Help them 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 and fees can multiply rapidly.
- Teach teens about identity theft. Every teen should know how to guard credit and bank information and when it is appropriate to provide account details to trusted sources. Be sure your teen knows that information should only be shared electronically with trusted sources if it is encrypted or password-protected. This information includes your teen’s bank account numbers, credit card numbers and social security number. Teach about common credit card scams, how to recognize and report fraudulent activity and how to avoid identity theft. If at any time you or your child suspects fraudulent activity, report it immediately. The Office of Financial Readiness has a guide that walks you and your teen through placing a credit freeze on your child’s social security number to stop identity theft after suspicious activity.
- Teach teens how to file taxes. Federal, state and local income taxes pay for public infrastructure, including roads, schools and emergency services. While paying taxes is considered part of your civic duty, it’s also the law. Part of the rite of passage for that first job is understanding how these funds are used as well as learning how to pay and file income taxes annually. Teach teenagers how to understand deductions and keep track of pay statements and how to enter the information from 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 children will be grateful to have financial planning skills once they have to do it alone. Start young. Lead by example and put your resources to use. Tap into resources through the Office of Financial Readiness, check out the Money Matters Courses from MilLife Learning or schedule a free financial counseling session with Military OneSource. Call 800-342-9647, set up a live chat or view overseas calling options to schedule a free and confidential consultation. Help your children practice good money management skills throughout their growing years, and explore money management classes available at your local youth center — and watch as they transform into money-conscious adults.