Teaching Children About Credit and Savings Should Top Parents’ To-Do List
Guest post by Ray FitzGerald
High school students graduating this year will head into adulthood with extensive knowledge on the Pythagorean Theorem and igneous and sedimentary rocks — but far fewer will know how to balance a checking account or properly use credit.
Gone are the days of home economics classes that teach students basic life skills that don’t show up on standardized tests. That means that we, as parents, need to fill in the gaps and become our child’s home ec teacher.
And your first lesson should start with credit and savings.
According to credit card issuer Discover, one-in-three Americans carry a monthly credit card balance — with the average balance hovering around $7,500 per card. A little more than 2% of cardholders under the age of 30 have balances that are more than 90 days delinquent.
So how can you ensure that your child doesn’t end up carrying a heavy debt load on his or her shoulders before the age of 30? The key is to start early and never stop teaching.
As a former elementary educator and financial services professional, I’ve had a keen view of both sides of the financial literacy spectrum. That’s enabled me to help hundreds of children and parents learn proper savings and credit habits early. Here are ways that you can start instilling proper financial literacy in your child, regardless of his or her age.
Tweens (ages 8 to 12)
Receiving an allowance empowers your child to make financial decisions and learn the difference between needs and wants. This is a great opportunity for parents to teach their children how to save their money — and even grow it.
As a teacher, I conducted a mock-stock market with my students, where they used imaginary money they earned for doing classroom tasks and invested it into stocks that they chose from their own interests.
Within a few weeks, these first- and second-grade students were looking up stocks online, researching dividends and earnings and deciding which investment was best for their goals. By taking charge of their own investments, they claimed ownership over the exercise and sought out as much information as they could.
If your parenthood experience is anything like mine, you likely know that a child is more than willing to spend mom or dad’s money, but he or she is a little more thoughtful about expenses when it’s their own money being used.
You can do these exercises in your own home, with similar fictional funds, to help your child understand that money is finite and once it’s gone, it’s gone.
Teens and young adults (ages 13 to 18):
These are the most crucial years for financial literacy, as these children are getting close to the age when mistakes can be far more costly than blowing your allowance on candy.
With my daughter, I always found that including her in the bill-paying process made her more aware of how much it costs to live a comfortable life. While I didn’t give her access to our savings account or credit card balances, I did have her sit nearby when I paid the bills and managed the budget for the month.
She moved cross-country two months ago to continue her education. One of the first things she told me after the move was how much she appreciated learning proper budgeting and spending behaviors early, as it helped her transition into adulthood much easier.
When your child inevitably moves out of the home, he or she will have a lot to deal with and learn. Teaching these important lessons now will lessen the stress on your child’s shoulders and make the move easier and less stressful.
This is also a time when parents should begin exposing their child to credit scores and the dangers of overspending with credit cards. Work with your child to calculate interest rates and show them how buying vital things — like a house, car or other expenses — relies on responsible credit behaviors.
I started this with my students by placing a fictional $5,000 charge on an imaginary credit card early in the school year. We used the average credit card interest rates at the time (typically around 21%, though that has changed since then) and every Monday, we’d calculate how much the balance has changed while making only minimum payments each month.
By the end of the school year, we often ended up owing more than what we initially charged, despite having made 10 payments toward the loan. By seeing physical examples of the minimum-payment trap, my students became aware of just how dangerous overcharging can be.
Another important facet of helping your child foster a healthy relationship with currency is maintaining an open dialogue at all times. If your child only hears about money when you’re voicing your fears about an unexpected expense or overdue bill, he or she will develop a fear of money and spending.
By explaining things to your child and talking regularly about positive spending and savings habits, your teen is far more likely to enter adulthood with an understanding of what it takes to grow savings without fear of loss.
With all of this said, teaching financial literacy to your child shouldn’t be filled with scary stories and cautionary tales. Children should learn to appreciate and respect money while understanding that responsible spending leads to less stress down the road.
You can start by setting up a savings-match challenge with your child. Just like many employers do with 401(k) plans, you can vow to match whatever portion of your child’s allowance that he or she sets aside into savings. This helps grow a small rainy-day fund for your child while showing them that saving money can enable them to make larger purchases over time instead of blowing their money on smaller impulse buys each week.
While these lessons may seem small, you’ll eventually start to see a shift in your child’s financial mindset. And, one day, you just might get a call from your son or daughter thanking you for the lessons you handed down.
Ray FitzGerald is an educator and writer who has worked with children and families around the world to build stronger relationships and positive behaviors. After years of teaching elementary students in a gifted education classroom, he’s expanded to share the lessons taught in those exclusive settings with every parent through his website, www.RaiseALegend.com. He holds degrees in Education and Journalism from the University of Florida and St. Leo University and currently resides in Florida with his wife, April.
PLEASE NOTE: The writers of this article are not medical professionals. The information in this column is not intended and should not be construed as providing medical or psychological advice, but rather to offer readers information and provide a perspective to better understand the lives of themselves and their children. Articles on this website may be opinion based. The articles are not intended to provide an alternative to professional treatment or to replace the services of a physician, psychiatrist, psychotherapist or other licensed medical professional. If you do have health or safety concerns, please get in touch with a healthcare professional.