Like many of my Gen X peers, my childhood education in money matters was sorely lacking.
While I distinctly remember my dad balancing the checkbook each week (and inevitably becoming frustrated when things didn’t add up), money was rarely, if ever, discussed in my presence. I knew taxes were filed every year and that the credit card was used when the bank account had run dry, but that was the extent of my money management education at home.
Now that I’m the mother of five children, I’m determined to do better. Money is not a taboo topic in my house, and we regularly talk about income, expenses and the dangers of debt. In addition, I have served as a Junior Achievement volunteer in my kids’ school for the last six years to help bring financial lessons into the classroom.
If you’re struggling with what your kids should know and when, here are some guidelines based upon my experience both as a parent and with Junior Achievement.
Children, at every age, are like little sponges, soaking up everything they see. For that reason, how you act around your kids will be infinitely more important than what you say to them.
At the youngest ages, most kids aren’t going to be able to grasp the finer points of money, but they are watching you. Take your preschooler to the bank with you and explain that this is where you keep your money. At the store, talk about how one item is cheaper than another and stress that you have to pay money for anything you want to take from the store.
When your 5-year-old asks for a toy you weren’t planning to buy, tell him or her it’s not in the budget. Be clear that this doesn’t necessarily mean you don’t have the money for the toy, but rather that you are choosing to not spend your money on it right now.
These conversations don’t have to be heavy-handed or formal. My guess is you probably have a running dialogue with your little ones every day already (“Look at the cool car over there!”). Just work money matters into some of those comments. Much of this might go over their heads, but at this age, your goal is to plant seeds and simply familiarize your kids with basic financial concepts.
Once kids hit school age, you can build upon those early lessons with more concrete information. Some kids may grasp financial concepts more easily than others, but here’s how Junior Achievement breaks down their lessons and what they think is age-appropriate for each grade.
- Kindergarten. At this age, students are ready to be introduced to coins (if they haven’t already) and understand there are different ways for people to get what they need or want. They may earn money for purchases, barter for goods or work with others.
- First grade. By first grade, kids should understand the difference between needs and wants. They should understand that family members may work in various jobs to earn the money needed to pay for items.
- Second grade. The second-grade Junior Achievement curriculum focuses on communities. Students at this age can understand that communities are made up of various businesses. The idea of government workers and taxation is also introduced at this age.
- Third grade. Third-graders build on the idea of community and learn about cities. In addition to planning and zoning, kids are taught how to write checks, make deposits and balance their checkbook register.
- Fourth grade. Within the Junior Achievement program, this is when entrepreneurship is introduced. Students are taught how businesses must balance their expenses with income and how regional differences may play into business decisions.
- Fifth grade. By the time students get ready to leave elementary school, it’s time to discuss more advanced concepts, such as global competition, that can affect the nation. At this point, an introduction to advertising and a discussion of careers is also in order.
As with early childhood, you don’t need to have formal lessons on these subjects. You simply need to be aware of what your child is capable of understanding and then bring those subjects up in casual conversation.
For example, let your kindergartener help you sort the change jar, point out the new construction and businesses in your community to your third-grader, and talk to your fifth-grader about the commercials on TV and how they are intended to make you want to buy.
In elementary school, you’re laying a foundation of knowledge. By middle school, you should be taking practical steps to give your kids hands-on experience with money, if you haven’t already. Here are some ideas:
- Open a savings account. Don’t do this on behalf of your child. Actually take them to the bank or credit union with you.
- Provide money-earning opportunities. Parents seem to be divided on the wisdom of providing an allowance. However, if you’re not onboard with giving your kids money for work they should be doing as a member of the household, at least consider providing opportunities to do extra work and earn money. They can’t learn how to manage money if they don’t have any.
- Encourage saving and giving. Help your child create a savings goal and put money aside for that goal. In addition, encourage them to share a portion of their money with others. Donating a portion of your income seems rooted in religion, but cultivating a generous spirit in your kids makes sense regardless of your spiritual beliefs.
- Point out the taxes on purchases. When you’re at the store, make note of an item’s price versus what you paid. Explain that the extra amount is a tax that goes to the government to pay for public services.
- Discuss your job. When you can, tell your kids about your job. Explain the education or skills needed for your position and encourage them to start thinking about what they might want to do someday. If you’re stuck in a dead-end job, don’t be afraid to use that as a learning tool also. You don’t need to vent to your kids, but you can say that you wish you were doing something different and then explain what you might have done differently if you could change your career path.
Once your children hit high school, they are ready for advanced concepts and in-depth real-world experience.
First up is the stock market. If you haven’t already, consider gifting them with some stocks so they can follow the daily ups and downs. If you have a college savings account such as a 529 plan, show them how that money is invested, what fund options are available and how you decided which fund to choose. Explain that the stock market is also where they will likely get their retirement money and go over the basics of 401(k)s and IRAs.
Next you need to talk jobs. While teen jobs seem to have dried up in the wake of the Great Recession, they will hopefully become more accessible as the economy rebounds. Getting a job not only fosters a strong work ethic, it gives teens a serious source of cash to manage. It also introduces them to the world of payroll and income taxes.
Along with a job, they need a checking account. They also need someone to sit down with them and make it very clear that a checking account is a recipe for disaster if they don’t combine it with a budget and some type of system to record their spending, whether that be a traditional register or a spreadsheet or an app. Unbridled spending without a plan or accountability is certain to lead to NSF fees … lots and lots of NSF fees.
Before they leave the nest
Some kids turn 18 and head for the hills, while others may linger at home until they wrap up college. Regardless of when they strike out on their own, be sure to have a couple conversations on these subjects:
- How student loans work, the ramifications of taking them out, and what other options might exist.
- What types of insurance every adult should have.
- How to create a realistic budget and stick to it.
- Why it’s important to always take a 401(k) match and how to open and fund an IRA.
- The dangers of debt.
- What a credit score is, why it’s important and how to get free copies of credit reports.
Giving your kids a strong financial foundation isn’t about having one conversation and calling it good. Instead, it’s looking for all the little opportunities that present themselves as teaching moments. It’s a process that starts from the earliest years and doesn’t end until adulthood.
Is there anything else you think kids should know that wasn’t covered here? Let me know what I might have missed by leaving a comment below or on our Facebook page.