Tips to help parents, guardians and caregivers show a child — from a preschooler to a college kid — why and how to become responsible with money.
It’s never too early or too late to introduce everyday financial concepts to a young person. And, you don’t have to be a financial expert. Here are tips.
Engage in regular conversations about money-related topics: That includes discussing with your child what you are doing, and why, when you manage money at home, around town or with the bank. For example, consider talking about similar products that have noticeably different prices at a store, and how you decide what is a good deal. And, you can explain that having a savings account at a bank has advantages such as income from interest, peace of mind of knowing the money will be there when you need it, and FDIC deposit insurance coverage for each customer up to at least $250,000 if the bank fails.
“If you are using plastic to pay for purchases, consider explaining the difference between a debit card, which is like writing an electronic check, and a credit card, which requires the consumer to make a payment in the future,” said Luke W. Reynolds, Chief of the FDIC’s Outreach and Program Development Section.
Even with automatic transfers, such as direct deposit of your pay, consider using your bank statements to show how money can move in or out of your account.
And, special times of the year — like during tax time or your workplace’s “open season” for selecting health insurance — present opportunities to explain financial decisions.
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Consider giving an allowance as a teaching tool. It can be a positive way to teach kids, even those who are preschool age, about money management. But before you give the first allowance, help your child decide how much he or she will spend now and how much to save for future goals. Then, help your youngster see whether that target is being reached by looking at a bank statement online or a paper copy. Also talk through the tradeoffs involved with spending decisions, such as how buying one toy may mean forgoing going for the opportunity to purchase another item the child also wants.
“There are many approaches to how best to structure an allowance, particularly whether to tie it to work such as household chores, so each family will need to decide what is best for them,” Reynolds added.
Think twice before giving a child more money if he or she runs out of funds before the next allowance payment. That’s because part of the benefits of waiting to enjoy a bigger reward.
And, for younger kids, consider paying an allowance in smaller denominations to make it easier to learn counting and saving skills.
Help your kids develop a healthy skepticism of advertising and unsolicited inquiries: In general, teach children how to analyze advertisements; they need to know that “special offers” often are not the great deal they appear to be.
Even young consumers are targets for identity thieves and among the victims of scams and rip-offs. Information for parents on protecting children’s personal information from identity theft is available at www.onguardonline.gov/topics/protect-kids-online
Highlight Series – For All Ages: Teaching Young People About Money
- For Pre-K to Grade 2: Earning and Saving Right From the Start
- For Grades 3-5: The Creation of a Comparison Shopper
- For Grades 6-8: Tips for the Teen Years…and Beyond
- For Grades 9-12: It’s Like … How to Speak to High School Kids About Money. Totally!
- For College Students: Passing Big Tests on Money Management
- Computer Security Tips for Bank Customers: A Basic Checklist
- Changes Could Help Boost Credit Scores
- A New Way to Save for Children with Disabilities
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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.
Learn about 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, once in a while use bills and coins 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 about how money is earned: Getting paid for little chores will allow your child to learn the value of working and earning. Consider making a chart for jobs your child can perform 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 his or her cash. This will show your child that spending and saving should go hand in hand.
Understand the difference between needs and wants: For your child to make good spending decisions, he or she will need to be able 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.
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 to return them on time. Help your child create and maintain a list of items he or she has borrowed from friends or relatives, along with the date due. Doing so will support the concepts of responsible borrowing and personal accountability.
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 also are ready to open their first savings account, if they haven’t already. Here are key concepts to teach.
Think before you buy: Continue discussing with children how to separate their needs from their wishes. Also help them think 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 products that are more expensive than alternatives.
Try to stick to a budget: Creating a simple spending plan at this age will teach him or her 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 the account, and pay particular attention to the account balance needed to open the account and to maintain it without incurring fees. Also point out the interest rate, which will be 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 shows 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,” said Luke W. Reynolds, Chief of the FDIC’s Outreach and Program Development Section.
And 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 is coming 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 actual cash is either deducted from an account or it must be paid back by a certain date.
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