School may be out for the summer but that doesn’t mean learning has to take a vacation. As a parent, you can teach your children how smart savings and money-management behaviors can help set them on the path to greater long-term financial security.
No matter how old your kids are, there’s one basic premise: Live within your means. Teach children to set aside savings for important financial goals to help keep them from getting into debt.
From there, tailor the lesson to the age. You can even start in preschool — say an allowance must last until the next one, so the child should try not to spend all the money right away. This is also a good time to help little children learn about saving. Give them piggy banks and demonstrate how saving part of an allowance over time will help buy something special later.
On top of these lessons, grade school children are old enough to understand that your job brings money into the household — which pays for necessities such as food, housing and clothing, as well as “nice-to-have” items. The difference between necessities and luxuries is a significant distinction to learn.
In middle and high school, financial discussions are crucial because teenagers can begin earning money on their own. Give your kids more details about how you budget money, the importance of saving part of every paycheck, and how to appropriately use credit cards. You can also talk about the various types of savings plans you have — for retirement, vacation, college or rainy days — and why it’s important to allocate money for necessities today and to save for needs or wants in the future.
As your children approach their final days of high school and begin college, it’s critical to explain why they should avoid credit card debt. Emphasize that credit cards should be used only for true emergencies (such as an unexpected car repair) rather than for day-to-day expenses because it’s too easy to spend money you might not have. Part of this conversation can include a discussion of credit card (and loan) interest and how much it can really cost over time. Suze Orman’s “The Money Book for the Young, Fabulous & Broke” can help older children understand financial challenges and how smart money management today can give them a much better financial future.