Dawn Papandrea provides Part II of our Teaching Kids About Money series.
She reminds us, “It’s never too early to focus on family cash conversations. From the fundamentals of saving money to complex concepts like compound interest and credit cards, instilling a solid foundation of good money habits early on can be one of the best things you do to set them up for success.”
She examines an age-appropriate game plan, along with fun games that can help raise our youngest to become financially independent adults.
From Pre-K to 2nd Grade
From around 3 or 4 years old, start teaching our children to feel comfortable talking about money and introducing some basic concepts. Instead of just saying, “Because I said no” when our child asks why they can’t have something they saw online, we can try saying something like, “We can’t get that building set today, but if you save up the money you get from your birthday next month, we can place an order.” Or, we might say, “Even though you want to go to the movies this weekend, it’s expensive, and we have to use that money to pay for the school supplies you need.”
Gamify your lesson: Turn thinking about money decisions into a game of “The Price Is Right” the next time you’re out together. For instance, have them guess how many dollars things cost, or which item is the most expensive. Or challenge them by giving them a small budget (say, $5) and asking them to pick as many items as they can without going over. This will help create awareness about the value of things.
3rd to 5th Grade
By around 9 or 10 years old, kids can really start to understand how to save and allocate money toward different goals. We can try using a jar or envelope system (label them “Spend,” “Save,” and “Give”), or find an app that divides money into different buckets for them. That way when they get an allowance or monetary gift, instead of blowing it at the candy store or on in-app purchases in one shot, they will pause and think through their short- and long-term goals.
Gamify your lesson: Pull out games like Payday or Monopoly, or download The Game of Life app. While you’re playing, it can open up all kinds of conversations about the smartest ways to use money in order to win the game – the perfect segue into how those concepts work in real life, too.
Middle School
As kids begin learning to work with percentages in math class, it’s time to start bringing up how interest works – paying it and earning it. The easiest way is to open a high-yield savings account and show how the balance earns interest each month. Getting extra money for doing nothing? That’ll hook them for life!
On the other hand, we’ll also want to explain that when we borrow money (or use credit cards), we’re the ones who have to pay the interest. Demonstrate how it works the next time they ask for cash to buy something because they are short on funds. Explain that you’ll lend them $10, but when they pay you back, it will cost them $12.
Gamify your lesson: Look for children’s apps that include interactive games, quizzes, and animated videos that teach money concepts.
High School
Building credit isn’t something you should wait to talk about until your older teen has their first credit card. Add our high schooler as an authorized user (assuming our credit is strong) so their credit file and credit score can start building, and sit them down to talk about what a credit report is and how it affects them.
Just compare it to the school report card they get. Just as their class performance (such as losing points on an assignment for turning it in late) determines their grade, explain that they will eventually be scored on whether they pay their bills on time and exhibit other financial behavior.
Then take the metaphor even further. People with the best grades make the dean’s list and have a chance at scholarships, while those with the highest credit scores have the best chance of getting approved for car loans, getting apartments, and qualifying for the best rates, which can save tons of money.
College-Bound and Beyond
Investing from a young age is so important, and this is the perfect time to build upon those compound interest lessons we introduced years ago. As our older teen takes on part-time work and earns money, introduce them to investment vehicles that can grow into large amounts for their future, like Roth IRAs.
The other big topic of discussion is paying for college. Be open and honest with our teens about whether and how we will contribute to the cost, what their future career plans are, how that might affect their ability to repay student debt, and how finances should factor into their ultimate school choice.
First Horizon Bank is a leading regional financial services company, dedicated to helping our clients, communities and associates unlock their full potential with capital and counsel. It’s the powerful tools you need with the personal service you deserve. Contact First Horizon for all your banking needs.
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