Teaching Young People About Money
Teaching Young People about Money: For Pre-K to Grade 2
Earning and Saving Right from the Start
Children in this age group are naturally curious about the world around them, including money. By introducing several basic concepts — and being a good role model — you can help them gain financial skills that can last a lifetime.
Teach them how money is made and used. Children can be introduced to money as soon as they learn to count. Even if you usually pay by credit or debit card, use bills and coins once in a while so your child can learn about the different values. Imaginary games, such as pretending to be at a store or restaurant, can help teach money concepts, too. Role-playing with real coins can be especially advantageous because it can teach children the values of different coins, but remember that coins are a choking hazard for younger kids. The U.S. Mint has resources for parents to use at www.usmint.gov/learn.
Teach them how money is earned. Getting paid for little chores will allow your child to learn the value of working and earning. Consider making a job chart for your child and include the payment amount for each completed task.
Start to save: Consider separating spending money from savings. Begin with clearly labeled jars or piggy banks for your child to divide up their cash to show your child that spending and saving money should go hand in hand.
Help them understand the difference between needs and wants. For your child to make good spending decisions, they will need to identify and distinguish needs (things you cannot live without, like food and shelter) from wants (toys and candy). One game you can play involves singling out items in your house and asking your child if it’s a need or a want and why. You can try the same thing while shopping.
Teach them how to borrow responsibly. Children at this age generally don’t understand the difference between buying and borrowing — they have to be taught how to be responsible for borrowed items and return them on time. Have your child create and maintain a list of things they have borrowed from friends or relatives, along with the date due. Doing so will support the concepts of responsible borrowing and personal accountability.
Teaching Young People about Money: For Grades 3- 5
The Creation of a Comparison Shopper
Kids in this age group are ready for meaningful lessons about saving and spending money wisely. Many may also open their first savings account if they haven’t already. Here are some key concepts to teach.
Think before you buy. Continue discussing with children how to separate their needs from their wants. Also, help them think about how to prioritize how they use their money. Consider, for example, making a household shopping list and asking your child to number the items in the order of importance. Also, use visits to the store to point out how advertisements can lead to unnecessary purchases or steer consumers toward more expensive products.
Try to stick to a budget. Creating a simple spending plan at this age will teach your child how to set limits on expenditures, prioritize spending choices, and avoid running out of money. Younger kids may verbally agree to a spending plan, while older kids can write it down. You will likely need to help the child keep written track of spending so both of you can monitor the progress.
Consider opening a savings account with your child. Shop together for a savings account, and pay particular attention to the account balance needed to open the account and maintain it without incurring fees. Also, point out the interest rate, often expressed in advertisements as the “Annual Percentage Yield” (APY.) Many banks offer special savings accounts for young people that can be opened and maintained for less money than a regular savings account. Consider reviewing with your child one of the savings account statements that show transactions. If you also encourage your child to keep a log of the money in the account, that could be an opportunity for you to work together on a simple math exercise and learn the value of keeping track of money. When you’re at the bank to open or access an account, ask a customer service representative to talk about what the bank does (it takes deposits, makes loans, and so on) and that money kept in a bank is safe.
Know that there are different ways to pay for things. Children can benefit from understanding where the money comes from when people pay for purchases by writing a check or swiping a credit or debit card. Use your bank and credit card statements and ATM withdrawal receipts to explain that cash is either deducted from the account or must be repaid by the due date.
Teaching Young People about Money: For Grades 6-8
Middle-school children are more likely to begin earning money outside of the house, and their increasing “wealth” and independence can open the door to costly impulse purchases. What advice can parents and guardians pass along to them?
Work more, earn more. Create opportunities for your child to earn more money by performing additional chores around the house or working a summer job. You also can help your budding entrepreneur start a small business in the neighborhood, such as dog sitting for neighbors.
Save for long-term goals. Start by discussing the costs of college and other expenses. Then you can explain the benefits of saving in a federally insured account and investing for your most important future needs and wants instead of borrowing money and paying interest. Together, you can visit your bank or review product offers online and find a good savings account (if they don’t already have one.) Also, discuss how, over time, investments in stocks, bonds, or mutual funds can grow money more quickly than deposits in savings accounts. But also point out that investments involve the risk of losing some or all of their money.
Learn about credit cards and borrowing costs. Help your child understand the pros and cons of making purchases with a credit card. Consider reviewing a card offer and discussing some of the commitments you’d make if you were to sign up. Be sure to point out how you would owe interest if you made a purchase with a credit card and didn’t pay off the balance in full. And explain the consequences of not making credit card payments on time. You might introduce your child to the concept of personal credit scores and how a low credit score can mean you’ll pay more in interest costs than someone with a higher score.
Teaching Young People about Money: For Grades 9-12
Here are some tips to help your high school students begin to connect the facts of personal financial education with real-life opportunities and how to implement them.
Get to know what taxes are. If you haven’t already, review a pay stub together and explain how taxes pay for services that include roads, parks, and libraries.
Help them think about career goals. Discuss career interests and dream jobs and what you both can do (beginning now) to help make them a reality. Consider talking about the jobs that members of the family, friends, or mentors have held. If your employer offers a “take your child to work” day, it can be an opportunity to describe what you and others do for a living.
For those younger than 18 who want to get a job, check what’s permissible under your state laws. To find out, start at the U.S. Department of Labor’s Web site at www.dol.gov/whd/state/state.htm.
You can also plant seeds for entrepreneurial ambitions by talking about how successful businesses often originated with a small idea. This can inspire perseverance and ambition.
Explain that buying a car is a big commitment. If your teen wants to own a vehicle, help them determine whether it is a need (for going to school or work) or a want (maybe simply for convenience or because peers have one). Explain the financial responsibilities, such as insurance premiums, maintenance and repairs, and fuel costs. Be sure to discuss and decide on who will pay these expenses. If you are sharing the responsibility, make sure you both agree on how they will do so.
Reinforce the idea that money in a federally insured financial institution is safe. Remind your teenager that a checking, savings, or other deposit account at a financial institution will carry protections related to theft and fraud and how federal deposit insurance will prevent loss from a bank failure. If they don’t already have a deposit account, consider opening one.
Examine the benefits and risks of non-deposit investments: Explain how investments such as stocks and bonds have the potential for higher returns over many years, but they also can lose money. If you have an investment account for or with your child, consider reviewing your brokerage statements together. Also, talk about what can make a particular investment, such as a favorite company’s stock, worth buying.
Stress the importance of keeping personal information secure: If your teen uses social media, discuss why sharing too much personal information can expose them to identity theft.