My next suggestion in how to teach kids about money may seem a bit far fetched, but I’m pretty sure it’ll work. Tell them to get a job! Of course, I’m talking teenagers. However, there are options for pre-teens to start making their own income as well, which I will cover later. The best way to teach your kids the value of a dollar is to make them earn it themselves. No longer will they take your busy day for granted. If you cut them off from any additional income and they know the only way to survive is on their own, I’m sure they’ll learn to adapt quickly. It won’t be easy and it could get quite dirty, but it’ll work.
I believe it’s a misconception that all teenagers are lazy and would rather spend their summer playing rather than finding a job. Though there are a lot of kids out there that do prefer to let mommy and daddy pay for everything, there are also a good amount of teenagers out there who simply want their freedom and not have to rely on parental figures to supply them with money to have some fun.
Of course, having fun is great and a necessity (especially while younger), but you must keep insight the purpose of this exercise – teaching your kids about money management. Make sure they open up a savings/checking account. The great thing about banks nowadays is that you can check your balance online. There is a slight defect though, the transactions tend to have a day or two lag before it’s realized within their systems. So I recommend convincing your kid to manage their money within their checkbook or hard copy ledger. Make sure they set aside time (about 10 minutes) a day updating their debits and credits. This way, they’ll learn a good habit that helps ensure they won’t overspend.
Once a child learns how hard it is to make money and manage it, this will teach them to cherish and save their hard earned money. At the very least, if they’re still spending their money frivolously, you can at least have a sigh of relief that they won’t be depleting your money.
Let’s be honest, most people don’t donate as often as they should. I’m guilty of it myself. But donating to good causes does play in the realm of being financially responsible as a society. And this is something that needs to be introduced to our younger generation at an early age as well. Teaching kids to donate part of their money isn’t only helpful for society, but it’s also very beneficial for them.
Sharing is caring. I would hope that a majority of the people out there want to make sure their children grow up caring about others. It is suggested that ten percent (10%) of your revenue should be set aside for donations to charities. What does this teach your kid about money? Well, simply that a majority (if not all) of the time there will be people less fortunate than themselves and they should help whenever possible. From a value of money perspective, it helps strengthen their idea how important money is in society.
Power in numbers. It’s true that a single dollar won’t exactly feed an entire nation alone. It’s really the idea that we, as a society, can help others. This then teaches our younger generation that when multiple people come together to help others, then making a positive difference can be achieved.
Introduction to tax deductions. Taxes are inevitable, and too many Americans are still left in a dumbfounded state when this topic is brought up, which we need to hedge. One way to hedge that is to introduce how donations are tax deductible. It’s a bit of hard concept to understand, especially for a child. How does giving money give me money back? It’s a bit counter intuitive, but it can be a good introduction to a kind of investment as well. Please note that this may be something you’ll want to teach them only after you teach them how to save and instill the value of money to them.
I know this particular article is only loosely related to the idea of teaching kids about money, but I really felt it was something that needs addressing. Being financially responsible doesn’t simply mean saving for ourselves, but doing what we can to help others whenever possible.
What percentage of your revenue do you think you donate?
I believe many children either don’t have a savings/checking account or they aren’t aware they have one available to them. My own parents were very conscious of making sure they were saving money for my future. It’s taken nearly 30 years for me to finally realize how lucky I was that they were able to do that for me, but I digress. Though my parents were actively saving for me, taking the money given to me as gifts and depositing it into my college fund, I actually had no transparency to where that money was actually going. So, at that point, all I knew was that my parents took my money, placed it somewhere, and I wasn’t going to see my money for a long time. I didn’t understand what the benefits of opening a savings/checking account were. And this a key point to helping teach kids about money management.
What can a child learn from having their own savings account? Plenty. Here’s to name a few:
The process of opening an account in person. Nowadays, we have abstracted the need to go to a physical bank in person to open an account and do everything electronically. If your child is younger than 16, and your bank has a physical office, I would recommend taking them to open up an account. Why? Though the information of the various savings accounts are available online, it’s always best to have a person walk you through every nook and cranny. This also gives your child an opportunity to exercise their social development skills and learn to ask the experts the right questions.
The power of compound interest. Similar to what I mentioned in, Prepaid Credit Cards and Kids, teaching your child about compound interest will help them understand what their money can do for them if they focused on saving and not spending. But difference between what I mentioned in Prepaid Credit Card and Kids, it will be coming from the bank’s pocket – not yours. Though nowadays, the interest rates are fairly low for savings/checking accounts.
Learning the pains of withdrawal. Savings/checking accounts may not provide the best return in terms of interest rates, but it does provide the best flexibility when it comes to access to your money. And though we would all probably prefer to have children learn about depositing money, they’ll eventually want to withdrawal their money as well. With every withdrawal they’ll learn to live within their means, which is a huge lesson for any person to learn at any age.
Reviewing the bank statement. It’s not like reading the financial section of the Wall Street Journal, but it’s a start. You can teach your kids about the different vocabulary used within the statements, but more importantly, you can teach them how organized the data is. The sooner they learn to keep their finances in order, they closer they are at being financially responsible.
If you’ve already opened up a savings account for your child, which one did you open and why?
Credit cards have a bad reputation. People view credit cards as an evil doorway to the downward spiral of debt. The truth is, we should all have credit cards. Sure they’re capable of ruining our credit, but ultimately their purpose is to help our credit. The evils of credit cards really falls upon the cardholder and miseducation. One way we can introduce children to using credit cards responsibly is by providing them with Prepaid Credit Cards, where the amount you place in the card is up to you.
Prepaid credit cards don’t necessarily help your credit, though there are ways (e.g. AccountNow Prepaid Visa or MasterCard, The Public Savings Bank Secured Visa, etc.), it’s mainly a great tool to help teach kids how to use credit cards responsibly.
Here are some suggestions on how to teach kids about money management with Prepard Credit Cards (with the help from Little Eddie):
When you give the prepaid credit card to Little Eddie, make sure you present him with a specified amount of time the amount of the card should last. For example, you can place $50 on the card and tell Little Eddie you won’t re-fill it for three months.
Along with the tip above, you can even add an incentive for Little Eddie to not spend a percentage of his money within the alotted timeframe. So, if you chose to make the percentage 50%, and Little Eddie only spent $25 of his prepaid credit card after three months, then your next refill won’t be $50, but $51 instead. And if Little Eddie is able to stay within his 50% limit, then you’ll re-fill his card with $52 instead. This will teach Little Eddie the benefits of compound interest.
On the contrary to the above tip, if Little Eddie uses up all his funds within a month (with no good reason), then you can reduce the amount you’re going to provide him during the next re-fill period. This will teach him to be more money conscious.
You should also make it Little Eddie’s responsibility to approach you to get the re-fill. Providing him with a grace period of one week or ten days to do so. If he doesn’t approach you within the grace period, you can again deduct $1 from their re-fill amount. This will teach Little Eddie to be more responsible with time and simulates the idea of credit card late fees.
Do you have any additional ideas on leveraging Prepaid Credit Cards to help teach kids about money management?
I was watching CNN recently and one of the topics for discussion was related to how an elementary school in Chicago, Ariel Elementary Community Academy, has integrated money management for kids into their curriculum. The moment I heard about this, I was immediately captivated. I have been meaning to write about this topic for quite some time now, but just never got around to it. So, thanks to CNN, I have become re-inspired.
Ever since I read the book, Rich Dad, Poor Dad, I have always felt that we don’t do enough to teach kids about money. There are so many adults who could have benefited from this type of education, if only they were introduced to it at an early age. I must admit, not even I was taught anything about managing money as a child. When I got a hold of money, I would immediately spend it on candy and toys. I think back and wonder what I could do with the money I squandered. Think for a minute about how much you could have now, if you just saved 10% of all the money ever given to you.
Well, no reason to dwell on the past any longer! The best we can do is to make sure the children we influence learn from our mistakes. In the coming weeks, I will have a series of articles on how we can teach kids about money management.
How many of you out there wished you were better educated on money management at an early age?
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