5 Lessons to Teach Kids About Money, from myFICO
Keeping your child safe and healthy is only the beginning of your journey as a parent. It’s also your job to help your son or daughter develop the many skills they’ll need to navigate the world as an adult, according to the credit score experts at myFICO.
If you’re not sure where to start your child’s financial education, don’t worry. Below are five key lessons about money and credit that can help you give your son or daughter a good financial foundation.
How Earning Money Works
One of the first lessons you may want to teach your child about finances is how earning money works. A great way to accomplish this goal is by giving your son or daughter some hands-on opportunities to bring in cash for themselves.
Consider setting up a series of tasks for your child to complete throughout the week (e.g., chores, reading books, etc.). Once your son or daughter successfully completes enough tasks, they receive an allowance for their efforts. You can track chores and allowance with a simple sticker chart on the refrigerator or through one of the many allowance apps you can find online.
For older children and teenagers, you may want to mix in some money-earning opportunities that you don’t have to pay out of your personal bank account.
For example, you could help your son or daughter look for a part-time job, host a yard sale, advertise babysitting or lawn care services, or even start an online business. Helping your child earn his or her own money can be incredibly rewarding—not only financially but also in terms of your child’s self-esteem.
The Importance of Budgeting
Training your child what to do with the money they make maybe even more important than teaching them how to earn it. It’s critical to show your child the value of a budget.
There are two effective ways you can help your son or daughter develop the habit of budgeting. First, let your child be involved in your own household budget. Sit down together and go over the different categories you use to divvy up your monthly income. Next, walk your child through how you decide where to spend the money you earn.
When your child earns their own money, either through an allowance or another avenue, it’s also important to teach them how to manage those funds.
This is a great opportunity to illustrate the difference between wants and needs. Needs receive the priority when you create a budget. Wants, on the other hand, sometimes have to wait until you save up enough money to make them happen.
Saving Money (and Why Savings Matters)
As you budget with your child, remember to demonstrate the power of savings. Your child should learn that a savings account is a tool that can protect your family from setbacks and help you afford the things that matter most to you.
You can start teaching children the concept of saving money very early. All you need is a piggy bank or savings jar. If you want to take the lesson to the next level, consider adding on printable savings trackers. Savings trackers can help your child visualize progress toward a larger financial goal (like a new toy, video game, or even a first vehicle).
With older children and teenagers, a real savings account is a wise upgrade to the piggy bank or jar savings method. Be sure to take the time to explain how compound interest can grow the money they tuck away in savings even more.
Giving Money to Others
As you show your child how to earn, budget, and save their money, don’t forget to include lessons about giving to others. The habit of charitable giving not only can help other people, but it can also benefit the giver as well. A study by Charities Aid Foundation found that 42% of people who donate money to charity do so because of the enjoyment they receive from giving.
If your budget allows, consider incorporating charitable contributions into your household budget. You can encourage your child to do the same with the money they earn. Most of all, you can let your child get involved in choosing the organizations you support.
How Credit Works
Last but not least, don’t forget to teach your young one about credit. It’s important to show your child how borrowing (and repaying) money works and how credit reporting and FICO® Scores fit into that process.
As you use a credit card, for example, you can walk a child through the fact that you have to repay the card issuer for that purchase. And explain how if you have the money in the bank to pay right away (by your next statement), you should be able to avoid interest fees.
When (and if) you feel your child is ready, you can consider adding him or her as an authorized user on your credit card account. Not only can becoming an authorized user on a credit card provide an opportunity for credit management practice, but it might also help your child build some credit history.
In adulthood, the ability to manage money and credit can have a major impact on your overall quality of life. According to the Urban Institute, a mere $250 to $749 in savings makes families less likely to face eviction or miss a utility or housing payment when faced with financial issues like job loss, health problems, or income reduction.
On the other hand, bad financial habits like overspending, taking on too much debt, late payments, and failure to budget can create a lot of stress. For example, a recent survey by Fidelity found that 67% of couples who are concerned about debt are likely to argue about money.
When you teach your child wise money and credit management habits at a young age, you can give them a head start. Your son or daughter will be better equipped to lead a financially successful life thanks to your example.
For more loan and credit education, visit myFICO’s blog at https://www.myfico.com/credit-education/blog
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