Three out of five young adults say their parents’ advice or example had the greatest influence over how they handle their finances today, according to findings from a Bank of America/USA TODAY survey. That parental involvement had a big effect on the practice of good financial habits. Of those who say their parents did an “excellent” or “good” job teaching them about money, 74 percent have savings and nearly half make a regular budget.
“Talking to your kids about money and using everyday moments to teach practical lessons is not only important, it works,” says Andrew Plepler, global corporate social responsibility executive at Bank of America. “It’s OK to be repetitive – kids may not always remember everything we say – but this survey shows that they do listen and learn from our example.”
Parents who would like guidance on how to teach kids valuable financial lessons can find help online. The website BetterMoneyHabits.com – a financial education resource by Bank of America and education innovator Khan Academy – offers easy-to- follow videos and tips to help parents teach important financial lessons to children of various stages and ages.
A child in elementary school is just learning how money works, so simple lessons are best. For example, a trip to the store for back- to-school shopping can be an opportunity to learn about how to comparison shop and save money. Ask your child to examine the prices of different folder and notebook styles and find the lowest priced items.
An allowance is another tool for teaching the building blocks of money management. Experts typically recommend parents who follow this approach to give young children 50 cents to $1 per week for every year of their age. Some parents start with a smaller amount and only raise it once they feel their child can handle the responsibility.
Moving up to middle school
At this age your child may be ready for more complex money- management skills, including saving for larger, medium-term goals such as coveted clothing or electronics. Work with them to build a savings plan around a goal and track progress. For bigger-ticket items, consider matching contributions to reward your child’s savings efforts. If she wants a new phone that costs $200, for example, you could ask her to save for half, and agree to cover the remaining $100.
This age is also a good time to talk about digital spending. All those in-app purchases, music and game downloads can add up. Instead of allowing your child to download at will, consider setting up online accounts to require a password for purchases and set a monthly spending limit. When he asks you to make a digital purchase, discuss the cost and how what he’s asking for will fit into the budget.
High school lessons
By high school, your teenager will be much more independent and will have had a lot more experience with money. If he is managing a larger allowance or even an income from a part-time job, it may be time to open a checking account. Checking accounts come with a lot of responsibility, but walking him through the process of setting one up and establishing best practices for banking and managing money responsibly will set the foundation for sound money habits far into the future.
As your teen gets older, she may start to have bigger ideas about things she wants to do or purchase – such as planning a spring break trip or graduation party or buying a car. Take the opportunity to talk about how much it could cost, work with her to map out a budget for all related expenses, and identify ways for her to help contribute, say for a plane ticket or the party invitations.
At some point, most teens are offered opportunities to take on debt, perhaps through loans or credit cards. You can help prevent impulsive decisions (and costly outcomes), by teaching teens some key guidelines about borrowing money. For example, most teens might not understand that there is a cost to taking out a loan or charging purchases to a credit card if you stretch the payments out over a long time. There is of course a benefit to borrowing money responsibly as a way to build credit so show your teen your credit report and discuss your own experiences to show how good and bad decisions affect credit and purchasing power.
Whether your child is just starting to learn the value of money or is old enough to have a bank account, the money skills you set while they are young could help them develop financial skills for a lifetime. For more ideas on teaching kids about money – as well as resources on everyday money matters for adults – visit www.bettermoneyhabits.com.