Thursday, 7 May 2015

Every day, children are getting messages about how to spend money.

When your children see you shop, pay bills, donate to charity or make a bank deposit, they're learning by your example.

But if you want to make sure that you raise a financially responsible person, you need to also teach explicitly.

The earlier you begin talking to your children about money, the better. Some research suggests that kids' money habits are formed as early as age 7. That doesn't mean you need to instruct your 7-year-old on 401ks. In fact, the best way to teach is through fun, age-appropriate activities.

Here we've compiled a list of some fun activities for each age group:

Preschoolers

The best way to teach preschoolers any concept is through imaginative play. Give your three-year-old daughter play money to buy pretend-food and household items, and she'll begin to grasp the basics of financial transactions.

Older preschoolers are ready to absorb lessons about numbers and letters, so you can also teach kids to recognize coins and identify coins by name. The larger concept about the value of each coin may have to wait until they're older, but just as letters are the foundation of words, coins are the foundation of future money management.

Elementary school age

Once children reach elementary school, you can begin giving them an allowance and teaching them how to separate their money into saving, spending and sharing piles. You can give them three jars and make sure that they put an equal amount in each. Once your children save enough to make a minimum deposit, you can open a savings account. As they get older, you can show your children how to track the interest earned.

The spending jar can teach a valuable lesson about delayed gratification. Have your son pick out a treat such as an ice cream cone or a small toy and save the money to make the purchase. Depending on their age, it might make the most sense to choose an item and an amount of money that will let them reach their goal in a week or two rather than months.

You can also begin to teach your children the pleasures of earning money; offer to pay your kids for helping with chores, like putting raked leaves in a bag or dusting low shelves.

Children in elementary school also might enjoy online games at sites such as PBS Kids' Mad Money as well as traditional board games like Monopoly and Life. Games can teach kids the importance of saving and investing their money and demonstrate the consequences of financial decisions.

Now that the kids are little older, a trip to the grocery store can be converted to a money lesson. Talk to your kids about how you decide which brand to buy or why you use coupons. Let them watch you read labels and explain why you buy ground beef instead of filet mignon. Ask them to help you calculate whether to buy a jumbo-sized bag of paper towels or the regular size.

Middle-schoolers

Tweens tend to be spenders, wanting the latest gadget or coolest outfit. That makes this an ideal time to teach them about short-term and long-term savings. Work with your child to establish a budget based on their allowance and any other earnings, such as babysitting money.

If your kids responsibly manage money, consider matching their savings to help them achieve their goal faster. Teach them the 10% rule: save one dime from every dollar you earn to establish a lifetime savings habit.

Tweens are old enough to be taught about the value of compound interest with concrete numbers and examples. The Consumer Financial Protection Bureau (CFPB) has a simple explanation on its site.

Teens

While some teens are responsible with their money, many want to spend every dollar they receive on clothes, movies and fast food. Peer pressure can be intense at this age, but parents can counter that by teaching their kids how to save for a long-term goal. Those jars you used when they were younger should be converted to joint bank accounts that you can monitor.

Teens are old enough to help plan a family vacation. They can learn valuable lessons about spending within your means when weighing the options between an overseas vacation or a week by a nearby lake or beach.

It's also time to learn about the difference between using a credit card and a debit card and the impact of debt on your score. A fun way to teach this lesson is "Celebrity Calamity," an online game that allows teens to see the consequences of spending money recklessly.

Begin talking about financing their college education as early as ninth grade and looking for opportunities for a part-time job, scholarships and grants. When you compare colleges, check out the College Scorecard so you can realistically explore the cost of the school and estimate your child's opportunities for financial aid by completing the FAFSA form.

It's never too early to start modeling good money management skills and sharing your financial experiences with your kids.

 

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