One of the most important areas of being a successful adult is an understanding of finances, banking, and economics. Unfortunately, it is one of the weakest areas of information taught in schools and homes these days.
Setting children up with fiscal knowledge and habits at an early age can mean responsible credit use, savings, and budgeting skills that will last them the rest of their lives. Here are some tips and tools to implement in your homes and classrooms to set children up for success:
- Give an allowance. For children to learn how to manage money they must have their own money to manage. The amount given will and should vary based on the income of the parents, but even $0.25 a week can give a child an understanding of savings and value.
- There are various ways to handle the allowance, of course. I recommend a simple list of basic chores that must be accomplished as a prerequiste requirement to receiving the small weekly allowance, and a posted list of more in depth extra chores (scraping the paint off the shed, raking leaves or shoveling snow, weeding the garden, reorganizing the pantry) with assigned dollar amounts that can be earned in addition to the basic allowance. This will help to teach children that a certain amount of work is required to earn, and the harder you work beyond that the more you can continue to earn.
- Start a budget early. Separate piggy banks or envelopes for different savings goals will allow your child to understand prioritizing saving and budgets. Some examples of categories can be “school lunch” if they don’t want eat a packed lunch or “treats with groceries” if they want a cereal or snack added to the basic purchases, “entertainment” “bicycle” and “savings”. One category should be smaller, more basic expenses and one should be a larger goal, and one should be savings, always. You want the children to understand that if they put all of their money into cookies with every shopping trip, they may never get the bike. Also consider a “give” category to set your children in the mindset of giving back to the community early on.
- Stick to your limits. Enforce savings actually being saved in addition to enforcing other budget categories. If you say that your children can only buy treats at the grocery store with their own money, make sure that you do not buy them treats when they do not have the money saved for the treats. Enforce that a percentage of money goes into savings and “giving” budget categories, even if it’s just $0.10 at a time and be consistent with it, as teaching financial discipline and adhering to it is one of the most important things to carry them on to fiscal responsibility later in life.
- Open a bank account. Most banks have accounts specifically for children with no fees or minimums if the parent has an account with them as well. Make sure to keep and go over the statements with the children so they can see the money they earn from interest by keeping their money in savings rather than spending it.
- Consider a matching plan. Help incentivize savings and also teach children habits that will transfer over into maintaining a 401k by matching a percentage of the amount they deposit in savings. This will help them understand the ways of making money by saving money.
- Consider investing in stock the child would know. This is dependent on the finances of the family, but a single share of stock in The Walt Disney Co. (nyse: DIS), or Mattel (nyse: MAT) can be a gateway into many lessons about the stock market, and financials, and will make them feel a sense of ownership in a business. When they, for example, go to see the latest Disney film, you can ask: “How many people are watching this movie? Is it increasing stock value?” Explain how events all over the world can influence how much the stock is worth.
- Teach about identity theft. Make them aware of the pieces of identifying information that is needed to open a bank account, or a credit card, and how anyone can say that they are you, and use your money, if they have that information.
- Consider teaching about loans by allowing a child to purchase something with your money, on the conditions that they pay interest, and they will not receive allowance again until the amount is paid back. Make sure that they understand that buying this toy now means that they will not get an allowance for three months. This can lead to painful situations later on, when the child wants a thing they cannot purchase. As long as you don’t give in, the memory of this lesson learned early can save them headaches and long-term debt once they leave for college and are being offered credit of their own for the first time.
Victor Notaro is an accomplished Corporate Banking Executive with a demonstrated record of success leading consultative and relationship management strategies in the financial services industry. Victor Notaro is skilled at building and managing high performing teams of professionals in commercial and corporate banking, fostering relationships with middle market and multi-billion dollar companies. Victor Notaro’s record reveals exceptional performance in the development of business capital strategy, with expertise spanning start-up of business units, leading YOY revenue growth, and producing sales in the millions of dollars. Victor Notaro is the Senior Vice President, Corporate Banking / MidCorporate Banking at Citizens Financial Group.