The world is beginning to approach a more cashless economy. There are many loans, grants, and methods of payment available. Furthermore, many of us are wondering how to teach kids about money.
How to introduce kids about money
Now that the economy is changing our spending habits are also changing. making it even more important to teach your kids about money. A financial literacy assessment in 2015 by the program for international student assessment (PISA) found trends that 80% of young people aged 15-24 made payments or purchases online. Another shocking fact was found by a 2015 survey by Standard and Poor. This survey found that only 57% of adults had any financial knowledge. This was based on their understanding of inflation and interest.
Other surveys conducted in 2019 showed that parents who discussed financial topics with their kids were more likely to have kids that are smarter about money. So it’s important to teach your kids about money at a young age. If financial topics are discussed with kids at an early age 61% are more likely to be smarter about their money. This is compared to 41% if finances are not discussed. The parents, kids, and money survey was conducted by T. Rowe Price.
According to Generation Z, You should combine true financial wisdom with modern solutions. In addition, this will teach your kids how to survive and thrive in the world. Now we are in a world without cash as everything starts to become digital.
Contents- Teach kids about money
In this blog, we will be looking at how you can teach kids about money. We will be looking at different age groups and how to introduce your kids from an early age. Here’s what we will be looking into.
- Introducing Money: Ages 3-6
- How to spend Money: Ages 6-10
- Introduction to Consequences: Ages 11-13
- Building Wealth: Ages 13-15
- Preparing for real life: Ages 15-18
- Becoming an Entrepreneur: Ages 18+
Right lets get started and teach your kids about money!
Introducing Money: Teach kids about money at Ages 3-6
During this point in your child’s life and development. They should begin to grasp the concept of counting. This is the perfect time for you to teach your kids the basic concept of money.
When you’re teaching your child at this age about money. I recommend you stick to teaching with physical Dollars and Coins. Try and hold off teaching kids about credit cards and loans at this age as they are far too young. Furthermore, according to Walt Gardner, a reality check blogger from Education week “Forcing children to pay cash makes them feel an immediate connection between their spending and their budget.”In addition, your children will really know how much money they have to spend and how much products actually cost as they will know how much they have left. “It also tends to impress upon them the importance of saving” according to Walt Gardner.
According to the Money Advice Service the reason that children love the feel of coins is so they get a real feel for money and even slide them into a piggy bank. Using coins can also teach children a whole lot of other values. You can teach your child that ten dimes are equal to or the same as one Dollar.
There are many more benefits of introducing finances to your kids at a young age. “Learning to divide up earnings in cash when they’re young gives [children] practice doing every day adding, subtracting, multiplication, division, and percentages: mental skills many children and teens aren’t effectively learning anymore,” says Nancy Phillips from Thewelaway.com.
There are many essential things you should teach your kids about money at this age here are the top 4:
- Saving
- Spending
- Giving
- Earning
We will now be looking at these 4 essentials in detail. And how you can incorporate them into teaching your kids the value of money.
Saving
When your child starts to learn about money at a young age and you teach your kids the concept of money, they will start to learn the cost of many items. In addition, they will realize that many items are more expensive than others. Also, that people must save to earn your larger goals. Some children at this age can get very impatient when it comes to purchasing larger items. If this is the case you can offer them chores around the house where they can earn extra money for their efforts. This will teach them that hard work pays off and that they managed to earn the money themselves. Furthermore, to reach their goals a lot quicker you can offer to match a percentage of their earnings. However, try not to bail them out or pay them extra for the same effort chores.
Spending
When it comes to spending it’s important kids spend the money they earn rather than the money they have been given. This is due to the fact that kids tend to consider their spending choices more carefully when spending their own money. No matter what the purchase it’s important you let your child know that they have earned what they are purchasing. Also that the item belongs solely to them for the hard work he or she put in.
Giving
Introducing your child to helping others at an early age can be rewarding for yourself and your child. The best way to introduce your child to give is by giving to charity. In addition, this has shown to have a pleasing effect on the brain and knowledge that your child is happy from helping others. If you teach your child to give a percentage of their earnings to help others it will stick to them for a lifetime. A good amount to start with would be 10%.
Earning
At this age obviously your child cannot work or get a job but being able to teach your kids that money comes from working hard is a good way to start. They can however earn their allowance by doing basic chores like making the bed or cleaning their rooms. Remember they must complete every chore before getting their allowance. If the chore is not completed by a certain time such as the end of the week they don’t get paid.
Apps you can use to teach kids about money
There are many apps available that can help you teach numbers to your children. Apps that allow your child to learn through bright colors, characters, and games tend to be my favorite. These apps give your child the basics of mathematics in a fun and educational way. My favorite app is DragonBoxNumbers.
There are also apps that can enhance your child’s financial knowledge. If this is what you would like to teach your child check out Saving Spree. This app will show your child how costs can add up, how to save, and unexpected costs that can add up.
How to spend money: Ages 6-10
When your child reaches the age of 6 there are many changes to the way that your child will perceive money and the way you teach your kids about money. At this point, your child will begin to understand the cause and effect relationship which is the pay they perceive money. Your child will also discover the following:
- Their Parent works for money
- Purchases can be made without physical money
- Items are purchased with money
- Money is spent differently ( some purchases require multiple payments and some require one off payments).
There may be times where your child visits friends and family members and notices they may have a smaller or larger house or even a smaller or larger car. This will cause them to ask a number of questions and even build your child’s financial knowledge. You will also need to teach your kids about money costs involved with these large purchases.
If you introduce your child to different ways of spending at this age this can help them gain how others spend their money. Here are some of the spending habits you can teach your children:
- Needs vs Wants
- Short-term vs Long-term goals
- Goods vs Services
Needs vs Wants
Nancy Phillips says “Emotion is the real reason most consumer purchases are made, and vendors know that.”Due to this its crucial you establish between emotional purchased ( wants) and necessary ones ( needs). Once you’ve grasped the concept try teaching your children that things do not come for free and many purchases are more about needs and not wants. You can shoe your child the monthly bills you pay so they know the house they live in is associated with costs.
If your child starts to ask why some of their friends have bigger houses or cars it’s best to teach them that some families are larger and need larger houses and cars. However, always remind them that just because they have a bigger house or car doesn’t mean they are free the costs associated with these purchases are a lot more.
Short-term vs Long-term goals
There are many ways in which you can introduce long-term and short-term goals to your children. A great way would be to introduce your child to the monthly payments you need to make towards the cost of a house. Many children have expensive items on their wish lists and this is a great way to establish long-term goals with them and encourage them to save up towards this goal.
Goods vs Services
It’s important for your child to understand that money isn’t always spent on physical goods. And sometimes it can be spent on other efforts for example services. There is not much information available about the difference between goods and services. The best way to educate your child on the difference is by using a passion of theirs to do so. If your child enjoys games you can explain that the game itself is the goods that you purchase and the developer or owner of the game is the service.
You can also provide your child with the concept of work. This will help share the concept of going to work and being paid to provide services and make goods.
Apps you can use to teach kids about money
Now that our world is moving into the digital world when it comes to currency now is the best time to get your child into the swing of this new was of spending. There are apps that allow you to teach your kids about money and give them physical money. You’ll also have the ability to see their balance on a screen. A good app is iAllowance.
With iAllowance your child will be able to save for specific goods and services they want. Rest a sure the parent still has full control of the funds. If you feel that your child is ready to move to a digital currency make thew change. However, it’s ok if some children need a little more time.
Introduction to Consequences: Ages 11-13
When you Teach your kids about money you may notice that when a child reaches his or her teens they tend to develop a sense of reason and learn about long-term consequences. At this age of a child’s life, they tend to desire more independence. They want to spend more time with their friends rather than their parents. On average teens spend 9 hours a day consuming media and on digital devices. They also develop financial peer pressure which can be very forced. Once your child is old enough it’s good to let them purchase items online. However, you should supervise.
Once your child has been given the basics to the online financial world you can give them control of the cashless world. It’s best to start with apps such as Paypal and Venmo. This can also be a way for them to gain knowledge of long-term consequences that may occur such as:
- Budgeting
- Interest
- Credit
- Debit
- Identity fraud
Budgeting
Keeping track of your expenses and learning how to budget and plan for your future is the best way to stay financially literate. At this age, it’s time to get used to your child’s spending habits. You should compare them to short-term and long-term goals. Normally at this age, a child’s spending goals are based around wants rather than needs. This is a great opportunity to teach them about profits and losses. However, it should be taught without harsh consequences.
When teaching your child about budgeting it’s great to use database software such as Microsoft Excel or Google Drive to break down their spending habits. A great way to utilize the software would be to break down the budget into catergories such as income, savings, spending, and goals. This way you can get an idea of the way your child saves and spends money. It’s important you review these habits on a regular basis and update the spreadsheets accordingly. This will he;p you determine if your child has more money in their account (profit) or owes money to the account (loss).
According to Phil McGilvray from Grandma’s Jars, you should “Help them save towards things they really want, and let them make mistakes – they will blow their money on dumb stuff and regret it!” it’s good to let your child fail so they learn. He also says it’s important that “Whatever you do, don’t bail them out. Once they get into their mid-teens, you must give them bigger opportunists to manage money and fail.”
Interest
The best way you can describe interest to your child by the following phrase “interest means that money grows in value over time.”This is a great way to teach them that interest can be your best friend or your worst enemy. Debt and savings can both occur interest one for the good and one for the bad.
Instead of using the allowance apps, you may have previously you can now start to mix things up by allowing your child to use a banking app. This way your child can keep a track of their spending. Personal banking apps are a great way to start as they will only allow your child to spend the amount of money they have saved. Make sure there’s no overdraft limit as this can get out of hand. However, if your child does manage to save their money why not match it by adding some extra cash to the account.
Credit
According to money-saving Mom”, if you can’t afford to pay cash, you can’t afford it”. This is a good way of thinking however it’s also good to teach your children about credit so they have experience. If you do choose to use credit cards as a method of teaching it’s important they are paid off each month.
If you do use credit cards and feel that they will help your child build a strong credit score you may want to consider adding them to your credit card as an authorized user. This way you as the parent will still have full control over your account. Some card companies will also offer spending limits to their authorized users so you can even cap their spending. You’ll also be able to track the purchases your child is making and it will remind you to follow up on these spending trends each month.
It’s important your child pays what they owe at the end of each month plus the interest. If your child goes over their budget make sure you take the money they owe out of their allowance app with a little interest.
Debt
Kids these days are being bought up with the great recession in mind. Many of them are aware of the debt and even the meaning. If you’ve been in debt and have first-hand experience of it that’s a good thing. There’s no need to feel embarrassed when sharing this with your children. First-hand knowledge especially from a parent is the most valuable. Many children will listen to the concept of debt more if they know how hard it has been on their parents. As well as the knowledge of how they may have struggled to overcome it.
Read: Ways To Get Extra Money To Pay Off Debt
Identity theft
Protecting your personal information is as important as spending and saving when it comes to financial literacy. There may be times where your child has access to a device they don’t have control over. One-third of high school students are issued with mobile devices that they have no control over. Nowadays children are more familiar with technology than we as parents are. Having said this there are still a number of ways you can help protect your child’s identity online.
It’s important you keep an eye on your child’s social media accounts such as Facebook and Instagram for data mining. Try making sure their geolocation is off and that their posts are not geotagged. It’s also important to teach them about sharing their personal information while using public WIFI. Lastly, advise your child not to keep personal information such as online login details or pin codes on mobile devices as they can be hacked.
Apps you can use to teach kids about money
There are many bank apps designed especially for children such as Bankaroo. This app allows you as a parent full access to your child’s goals, finances, and ability to set annual allowances. You’ll also be able to add to your child’s finances on the app earning them more interest. The great thing about Bankaroo is that there is a school version available. This allows teachers to teach maths and financial education.
Designed by the Center for Identity at the University of Texas at Austin beat the thief is another great app. The app is a game that teaches your child about identity theft online. When your information is saved securely you’ll earn points but if you give your information away a burglar will creep closer and closer to your house. Once the burglar is in your house the game is over. This is a fun way for your child to learn bout identity fraud online.
Building wealth- Ages 13-15
At this age of your child’s life, they start to learn abstract concepts and the downfalls of long-term consequences. During this time your child will begin to distance themselves from their parents. They will start identifying with friends and social groups making this a good time to teach them how to spread their wings.
There are many financial concepts you can teach them at this age giving them their independence and allowing them to find their financial identity when out with friends. The concepts they should learn are:
- Banking
- Investing ( stocks and shares)
- Work
Banking
Even though our currency is becoming more cashless and many of us are paying for products and services online banks are not going anywhere any time soon. In 2016 84% of bank customers, ages 18-34 have visited the bank at least once. Banks will always be there to keep your money safe. With out banks we wouldn’t be able to spend our money else where such as online.
There may have been times where your child has been to the bank with you. At this age, it’s time to open a separate account for your child if they do not have one already. I opened an account for my child when she was young and when she gets to this age I can transfer it to a teen account however it’s important the account is still monitored. There are many bak accounts tailored to kids and here are some of the criteria you should look out for when opening an account for your child.
- No monthly fees
- Online account management
- High interest rates for savings ( should be more than 1%)
- No minimum balance needed
When your choosing a bank account try and opt for an account at a branch near your home. It will allow your child to visit if they have any questions.
Read : What Do You Need To Open A Bank Account?
Investing
At this age, your child should know how to save, earn money, and budget. You can now begin to teach them about a little risk. You must however keep it simple, tell them that there are two options stocks and bonds.
Out of the two bonds tend to be the safer option. Bonds are where you give the government your money and they repay it later. Although it takes time to occur any real interest in bonds they tend to be a lot safer than stocks. You can keep up to date with the interest rates of bonds with Edward Jones.
When teaching your child about stocks associate them with higher risk and higher rewards. If you purchase stocks you’re purchasing a share in the company and your return depends on the health of the company. You must educate your child on the buy low, sell high mentality. Allow them to invest low and make mistakes so they learn.
Work
At this point, your child has a clear understanding that money comes from hard work. However, up to this point in their lives, they have earned money from household chores and with the supervision of their parent. It’s time you introduce them to a job that is sperate from your control and that can really reinforce their sense of responsibility. Having a part-time job can also have a positive impact on college applications.
When working your child doesn’t necessarily have to go out and work on their feet. there are many sites like Fiverr that offer freelance work. Your child will be able to join from the age of 13 but parental consent may be needed. You may also want to monitor the site in case of any payment issues this is especially important if your child is unaware of identity theft.
If you haven’t opened a bank account for your teen it’s time to open one as soon as they start to earn their own money.
Apps you can use to teach kids about money
When choosing a bank account it’s important you have online access. The best way is through the banking app. Many banks will send you alerts if your child has purchased an item and if they are running low on funds. This as a parent gives you as much or as little control over your child’s spending habits depending on your preferences.
According to Dan Kadlec must “embrace new tools like Acorns and other savings apps if they want to remain relevant.”If you’re looking for an app to help your child with their spending Acorns is one of the best apps to start with. With Acorns, you attach your credit card and spend it as normal. The app will automatically invest any change that you have left from your spending for instance if you spend $1.50 it will round it up to $2.00 and save the extra 50 cents. Your teen can choose from a number of different bonds and stock classes with minimal financial risks involved.
Preparing for real life: Ages 15-18
When your child reaches mid to late teens there can be a number of complex problems involved. Your teen will now have a full image of the future consequences of their actions and what that involves. At this point, your child should be fully financially literate and have a good understanding of growing wealth. Now is a great time to teach them about the bigger expenses they may face in life such as purchasing a home or having children of their own.
As your child is preparing to go off to college it’s important you teach them about good vs. bad debt, taxes, and how handling them responsibly can positively impact their financial future.
Published by Pew Charitable Trust in 2105 a report showed approximately 80% of Americans “hold some form of debt, whether mortgages, car loans, unpaid credit card balances, medical and legal bills, student loans, or a combination of those.” This is more reason to teach your teens at an earlier stage so they don’t fall into these statistics.
Good Debt
There are many forms of good debt, essentially good debt is long term investments, in asset form that increase a person’s overall net wealth. Some examples of these are:
- Mortgages
- Car payments
- Student Loans
Mortgages
Although your child may not need a mortgage as of yet and it may seem a long time away it’s important to educate them on the matter. You can use the basic knowledge they have learned from finding a student loan to advise them on mortgages. Also, don’t forget to always pay on time to avoid extra fees.
Car Payments
When your teen is shopping for a new car it’s important to decide whether you’re looking for a new or used car. When it comes to debt the lender does not care about how flashy the car is they care about the repayments. New cars are a lot more reliable however depreciate in value and if it’s your teen’s first car do you really want to spend so much?. However used cars can come with a number of maininace costs but does not mean that they will. I’ve always purchased a used car and had hardly any issues. If you are purchasing a used car try to purchase from a dealer as they check the car over and are more reliable. If you looking for advice on new and used cars check out Kelley Blue Brook who will provide you with the tools when shopping for a new car.
Student Loans
When it comes to student loans and mortgages they are still the largest and second-largest customer catergories for debt according to Forbes. However, with the ability to study and work students are taking loan debt more seriously. Many college courses offer the ability to take a gap year to earn extra money while you study.
There are many student loads available on the market. When you’re taking out a loan for your child be sure to do some research. There are many loan companies that have a big online presence and offer competitive rates. Once you’ve identified the lowest rate loans make sure your teen does not apply for any more loans. It’s important to educate them that they will be paying back any loans when they are about to start their careers alongside high-interest rates. You must also encourage them to make payments on time.
Bad Debt
When it comes to bad debt, you can describe it as liabilities. Bad debt is not an investment and missed payments can really affect your credit score. Here are some examples of bad debt:
- Credit card debt
- Car payments
- Payment loans
- Unforeseen Circumstances
Credit Card Debt
By this stage, your teen should understand that credit cards should only be used if they can pay them off at the end of the month. Sometimes there are some unforeseen circumstances that will push you over your credit limit. If you miss a payment meant it can have a huge impact on your credit score. It also means your APR will come into effect meaning your payments will no include interest.
Car Payments
Car payments can be good and bad debt, there is a real gray area when it comes to car payments. when it comes to car loans they can really count as a liability. If you purchase a new car as soon as you drive it away from the dealer it depreciated by 10%. It also depreciates by 10% annually thereafter. It is important to purchase a new car when you have the funds to repay the loan. However, there are many used cars you can get that will run well, and if you happen to have a well-running car keep it as long as possible.
Payment loans
It’s important to teach your children to stay away from Payment Loans. Payment loans are predictors when it comes to credit. They also have a very high APR rate. Only if your teen is in desperate need they should consider a payment loan. However, it’s important you let them know that they can always come to you first.
Unforeseen Circumstances
There are many aspects of life we cannot predict. There may be times where you cannot keep control of your finances. Medical emergencies, unemployment, maintenance on cars, and home are many unforeseen circumstances you may face. These are things your child should take into consideration before they make large purchases.
Apps you can use to teach kids about money
According to PCMagazine Mint is “the best personal finance software hands down.”The setup process is simple and you can view your finances in a matter of seconds. Your child will have the ability to connect a number of accounts. Once connected you’ll have an extensive analysis of their finaces. It’s a great app to identify specific spending habits and trends which also give you the ability to improve on these.
Becoming an Entrepreneur: Ages 18+
Many of us as parents believe the key to financial literacy is security for their children. Whereas this is true with the right practice and choices your child will have the ability to make financial choices alone. Another benefit of giving your child their own financial choices is confidence.
Once you provide your child with a comprehensive understanding of finances they’ll have the confidence to make bolder moves when they grow older. Kids nowadays have a lot more knowledge about finances than I did when I was younger this is due to all the media. Children these days are getting taught a lot earlier as they have a lot more wants due to increase amount of technology available. When I was younger a doll would entertain me for hours now children require mobile phones and game consoles.
Credit Scores and Credit Reports
Now that your child is financially literate this is one of the last steps you need to teach your kids about money. Introducing them to FICO is a great way to start.
If your child has already been making monthly payments towards a credit card they must already have a credit score. In addition, paying off student loans can also help their credit scores. There are ways to check your credit score without harming it.
Now that you’ve seen your child’s credit score you can educate them on what goes into determining it such as:
- Amounts of debt
- New credit
- Payment history
- Credit card and loan debt
- Length of credit history
You may realize that your child’s credit rating is low. It’s important you teach your kids that this is not always a bad thing to do with money. It could mean they have not established a financial history yet. It’s important you establish the difference between paying off good debt and building credit. Low-interest rates associated with good credit can make it a lot easier to pay off loans in the future and result in savings for your car and home.
In conclusion
Now that you’ve managed to teach your kids about money from a young age you can rest assured they will be financially literate. The main benefit of educating your child at a young age is that they are more likely to make wiser choices when older and really value money.
