Learning how to save money isn’t something they teach in school. In fact, it really comes down to the parents to teach kids the ins and outs of money management. If the parents fail, those kids could face a lifetime of hurt.
Many parents think that kids aren’t old enough to handle the concept of money until they’re older. That’s not actually true at all. Kids learn to count money (in the U.S.) in the First Grade. If they can count it, they can handle it.
The idea with the tips below is to ease your youngster into a better understanding of how managing your money effectively can influence not only how long you keep the money you have, but how quickly it can grow while you have it.
1. Use a Banking System for Chore Money
One high-tech way to teach your kids how it feels to have your own banking account is to use one of the many online parent-child “banking” systems you an set up for your kids. One example of this is Allowance Manager.
These online systems usually operate the same way. You can add or subtract “money” to your child’s account for various things like good or bad behavior, doing chores, or anything else.
Kids see these as credits or debits into their virtual banking account.
What’s pretty cool about Allowance Manager is that you can also order an “AllowanceCard” – an actual Visa card, that kids can use to spend the money they’ve earned. You can transfer those funds from your bank account to the Allowance Manager account whenever needed.
Be aware that there could be fees associated with ordering the card or transferring money, so read the fine print!
Another site you can use to start your “family bank” is First Kids Bank. This site is less about flexible ways for the kids to spend the money, and more about flexible ways for parents to track and manage chores and allowances without spending a lot of time doing it.
Your kids can see their balance at any time, they can request a “withdrawal”. When you give them the money, just click the “withdraw” link and type the amount they took out of their account.
The beauty of this site is that it also allows parents to teach kids really important lessons about using credit – providing kids with the ability to overcharge their account, but accumulating interest fees in the process.
It’s best for kids to learn all about how using credit really works long before they are old enough to make the mistake of taking out a few credit cards in their name.
2. Graduate to a Training Debit Card
Another lesson that they don’t teach in schools, unfortunately, is how to properly use a debit card. It seems like a simple concept if you’ve been using one for years, but for kids the concept of a plastic card you can buy things with is rife with potential problems.
Remember the days when people would write out a check for everything, and immediately fill in that expenditure in the checkbook register?
I think it’s safe to say that the checkbook register is an antiquated item these days. When you do see someone scribbling in one at the cash register, there’s usually a line of people behind them rolling their eyes and checking their watch.
The debit card is a given, so you might as well train your children how to use one responsibly as a money management tool. There are a number of great “debit” cards out there that are designed specifically for children or teens. One that comes to mind immediately is Bluebird by American Express, a service marketed heavily by WalMart in recent years.
Bluebird lets you create a safe account – complete with actual American Express debit cards – that you can preload with money for your child.
This is a great first card to give to your teenager (only kids over 13 can have a credit card in the U.S.), to get accustomed to using a debit card, and getting into the habit of monitoring the balance of the account.
The beauty with services like this is that there are no fees, no ability to overdraw from the account (your child can only spend what you pre-load), and no danger of destroying their credit rating by racking up debt.
Similar services to Bluebird include Visa Buxx, American Express’ other pre-loaded offering for teens called PASS, and most banks and credit unions also offer their own pre-paid credit cards that you can get for your teen son or daughter.
3. Offer Saving Incentives
One of the best ways to get your child used to the idea of the savings opportunities they will have access to once they start working, is to offer them the same sort of deals that companies offer employees.
Tell them that you’ll give them 50 cents for every dollar they put into their savings account, up to 6 percent of whatever they save. If they look at you like you have three heads, take them over to Bankrate’s 401k retirement calendar and plug in some numbers to show them just how much money they can make by the time they go to college.
So with a starting balance of $1000, and if they get an allowance of $3000 a year and if they save at least $300 a year, over 3 years you’ll have given them $270 completely free, and earning only 2% interest in a standard savings account, they’ll have saved $2,268 to take with them to college.
Suddenly, saving 10% of that monthly allowance doesn’t feel so painful!
4. Teach a Hard Lesson on Credit
Finally, the most important lesson you can teach your child is how dangerous using credit can be. You’ll know you really need to teach this lesson if your young child or teen is always asking for more money.
Here’s the trick – wait until they ask for something like a new Playstation or Xbox game console, and they haven’t saved up enough of their allowance to buy it. Tell them that they can take out a loan for the $200 it would take to buy the game. They don’t even have to pay it back for up to six months, but as payment, the loan will have an interest rate of 17% compounded daily.
Let me tell you something about teens. They’re going to agree to any terms you say, because it means they get to have that game console today. While you’re spouting off numbers and interest rates, they’re already having visions of playing video games.
It won’t be until the six months have gone by, and it’s time for their allowance. You retain the payback amount of $200, but you’ve also kept almost an additional $20 as well.
When they complain about the missing $20, you can remind them of the terms of the loan, and that at that interest rate, compounded daily, the fee for “borrowing” money from you is $17.73. That’s the cost of money!
You can be sure that the next time some smooth character walks up to your teen on the college campus and starts offering a “free” t-shirt if they sign up for a credit card, your money-savvy teen will be quick to ask for the interest rate and terms on the card, and will probably turn down the offer!
What other important financial lessons should teens learn before heading out into the real world? What money lessons did you have to learn the hard way? Share your thoughts and experiences in the comments section below!