How to Teach Kids about Money
Saving your financial wisdom for a future fireside chat? Money expert and best-selling author Beth Kobliner, a member of the President’s Advisory Council on Financial Capability for Young Americans, says to start talking now! Here’s some advice on what concepts children are primed to grasp and when…so you can deliver the right info at the right time.*
Preschoolers are ready to learn the distinction between wants and needs- and the basic premise of pricing. At the grocery store, look together at what the same dollar can buy- say three bananas or a small bottle of ketchup. Which is a want? Which is a need? You can negotiate this issue further in the cookie aisle, where “need” is often up for debate.
Value and comparison-shopping are concepts first graders can get, especially when the funds are their own. If birthday money from Grandma is burning a hole in your granddaughter’s pocket and she has her eye on a specific toy, you already have an engaged audience. Shop online together for the best deal. Discuss the bummer of shipping costs. And maybe visit the mall to extend the lesson.
Saving toward a goal is totally within the grasp of an eight year old. Open a low-fee or no-fee bank account for your grandchild. She’ll find it easier to save once she has a place other than her piggy bank to keep her (small) stash. Encourage her to save a dime or a quarter for every dollar, but give her a bit of autonomy regarding when to spend and on what. That’s a key to developing financial responsibility.
Tweens like to get the inside scoop. Teach them about the dangers of credit-card debt. Well before kids can apply for their own credit cards, you should be explaining the risks involved. Keep it simple: Credit Cards make sense only if you pay them off every month. If you use them to buy things you can’t afford, as many people do, that can lead to deep debt and financial disaster. This is the time to share stories of friends (change the names) who have stumbled into bad credit-card debt. Take time to talk about the difference between a debit card and a credit card.
With a teen’s first real job and paycheck comes a very real brush with taxes. Take-home pay versus gross pay is a punch to the gut–and presents a chance to explain a few things about your own paycheck. You don’t have to share details, but you can talk about the money that’s taken off the top of your gross pay for your health insurance, 401 (k), and flexible-spending account. Also, explain the money-saving upside to pretax contributions.
*Portions reprinted from Real Simple magazine, January 2015, page 80.