"Money Lessons At Every Age" by @Forbes
Given how important financial skills are to navigating life, it’s surprising that our schools don’t teach children about money. As a parent, however, you can teach your child important financial lessons as he or she grows up. Here are some tips appropriate for each age group from Beth Kobliner, author of the New York Times bestseller Get a Financial Life, and a member of the President’s Advisory Council on Financial Capability who spearheaded the creation of Money as You Grow, which offers age-appropriate money lessons for children.
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Ages 3-5: You may have to wait to buy something you want.
“This is a hard concept for people to learn of all ages,” says Kobliner. However, the ability to delay gratification can also predict how successful one will be as a grown-up. Kids at this age need to learn that if they really want something, they should wait and save up to buy it.
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Activities For Ages 3 To 5
1. When your kid is waiting in line, say, to go on the swings or for his or her birthday, discuss the importance of waiting.
2. Create three jars – each labeled “Saving,” “Spending” or “Sharing.” Every time your child receives money, divide the money equally among the jars.
3. Have your child set a goal. Every time he adds money to the savings jar, talk with him about how much he needs to reach his goal, and when he will reach it.
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Ages 6-10: You need to make choices about how to spend money.
At this age, it’s important to explain to your child, “Money is finite and it’s important to make wise choices, because once you spend it, you don’t have more to spend,” Kobliner says.
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Activities For Ages 6 To 10
1. Include your child in some financial decisions. For instance, explain, “The reason I chose the generic grape juice rather than the brand name is that it costs 50 cents less and tastes the same to me,” says Kobliner.
2. Give your child some money in a supermarket and have her make choices about what fruit to buy, within the parameters of what you need.
3. When you’re shopping, talk aloud about how you’re making your financial decisions. Say things like, “Is this something we really, really need? Or can we skip it this week since we’re going out to dinner?”
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Ages 11-13: The sooner you save, the faster your money can grow from compound interest.
Explain that compound interest is when you earn interest both on your savings as well as on past interest.
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Activities For Ages 11 To 13
1. Describing compound interest using specific numbers is more effective than describing it in the abstract. Explain, “If you set aside $100 every year starting at age 14, you’d have $23,000 by age 65, but if you start at age 35, you’ll only have $7,000 by age 65.”
2. Have your child do some compound interest calculations on Investor.gov. And have them read this inspiring example of someone who used compound interest to his advantage incredibly well.
3. Discuss what your child will have to give up to save, and how much she could earn from compound interest with those savings. Would she rather buy a bag of chips after school every day or put that money toward an iPod?
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Ages 14-18: When comparing colleges, be sure to consider how much each school would cost.
Talk about how much more college grads earn than people who do not have college degrees, and find the “net price calculator” on various websites to see how much each one costs, when you include all the other expenses besides tuition.
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Activities For Ages 14 To 18
1. Discuss how much you can contribute to your child’s college education each year. Also, check out these eight tips on taking out student loans.
2. Use this College Scorecard to compare how much each college costs, what the employment prospects of graduates are, and how much student loan debt could affect your child’s lifestyle after graduation if he or she attended that college.
3. Estimate your financial aid using the FAFSA4caster tool at fafsa.ed.gov.
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Ages 18+: You should use a credit card only if you can pay the balance off in full each month.
It is all too easy to slide into credit card debt, which could give your child the burden of paying off credit card debt at the same time that he or she is paying off student loans. Plus, it could affect his or her credit history, and that could make it difficult to, say, buy a car or a home, or even to get a job. Sometimes, prospective employers check credit.
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Activities For Ages 18+
1. Teach a child that if a parent cosigns on a credit card, any late payment could also affect the parent’s credit history.
2. Together, look for a credit card that offers a low interest rate and no annual fee using sites like Bankrate, Creditcards.com, Credit.com, or Cardratings.com.
3. Explain that it’s important not to charge everyday items so that way if you have an emergency expense you can’t cover with savings, you can charge that.
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