Help your kids get wise about money
Talking to kids about money is a great way to lay the groundwork for healthy habits.
According to research from CambridgeUniversity, money habits start to form by age 7. That means that your good and bad habits can be passed on to the next generation.
Dr. David Whitebread, co-author of the study, said habits of mind, including financial ones, “are largely determined in the first few years of life. ... Early experiences provided by parents, caregivers and teachers ... can make a huge difference in promoting beneficial financial behavior.”
The good news is that you don’t have to do it alone: The newly relaunched websiteMoneyAsYouGrow.org, created under the auspices of the federal Consumer Financial Protection Bureau, is a great resource for parents and caregivers because it breaks down what kind of conversations you should be having with your kids at various ages.
For example, for kids between the ages of 3 and 5, the site recommends that you identify coins and their value and discuss the difference between something that is free, like playing with a friend, and an item that costs money, like an ice cream cone. You should also introduce the concept ofwork and the idea that youmay have towait for something youwant.
When kids enter elementary school, youmay choose to start paying an allowance. That said, it is not imperative to offer them. If you do, however, most experts agree that it should not be based on household chores. Rather, it’s better to choose an amount based on what you already spend on small discretionary items your child likes but doesn’t need — like a toy.
Make it clear that the amount you’re giving replaces what youwould have been spending on her. You should also talk about the concept of sharing money with those who are less fortunate. As with the savings habit, the concept of philanthropy is best learned early.
Try to encourage kids to save 10 percent of their allowance or any cash gifts by opening a savings account. Then you can explain the concept of earning interest and even consider a “matching plan” for your child’s savings: You put in 25 cents for every dollar she saves, for instance.
Part of this process is helping kids understand that once you spend the money, you no longer have it. This leads to a conversation about choices. How will your child learn to allocate the money between spending, saving and donating? MoneyAsYouGrow.org encourages you to use your daily routine to help: “When you are out shopping, point out essentials such as food and clothing, and ask your child to describe items that he maywant but are optional. ... Talk about howyour family decides what to buy and what to pass up.”
With teenagers and young adults, you can begin the first of many conversations about debt. Explain why it’s important to avoid using credit cards to buy things that you can’t afford to pay for. If you plan to co-sign for a credit card, make sure that you underscore that any late payments can affect both the child’s and your own credit history.
As soon as kids get their first job, discuss the difference between gross pay (before taxes are taken out) and net pay (the amount you take home), and as they enter high school, you can start talking about the cost of college and about whether or howmuch the family plans to contribute toward education.
As your children experience new financial situations, encourage them to ask you any questions that arise. If you don’t feel 100 percent confident about the answer, going through the process together will help youwork through challenging experiences or complex tasks.
Contact Jill Schlesinger, senior business analyst for CBSNews, at askjill@JillonMoney.com.