Any parent or teacher knows that kids soak up knowledge like a sponge. When that knowledge is positive and constructive, it lays a foundation for future healthy habits.
When it comes to how to think about and use money, parents are often children’s first teachers. Parents lead by example when using a budget, holding confident conversations about family finances, and practicing meeting household needs before spending money on personal wants.
Parents can also actively teach children about money by showing them how to shop within a budget, banking basics such as making deposits and withdrawals, and introducing them to how credit works as they get a little older.
Most important is to have constructive, positive conversations with kids about money so they build confidence for their future. Here are five essential conversations to get started.
Conversation 1: Where Money Comes From
In this electronic age when many moms and dads complete transactions using a smartphone or smartwatch, or by simply tapping a card, kids can miss that money is a tangible item – and that it isn’t unlimited!
- Show them the money. Get out the real thing -- bills and coins -- to teach them the different denominations, how to add it up, and how to make change. Take a trip to a store and have your child pay with cash so they can get the full experience.
- Their Very Own Account. Opening a savings or a checking account -- kids as young as 6 can get a checking account at SAFE – encourages conversations about how to make deposits and withdrawals, use a debit card, and monitor savings and spending. And rest assured, parents have access to their children’s accounts so they can transfer money, monitor activity, and turn debit cards on and off.
Conversation 2: Needs vs. Wants
At the root of healthy financial habits is making sure a budget covers basic needs such as housing, utilities, and loan payments before spending money on toys, new clothes, and other “wants.”
Bring this to life by talking to your children about how to make money-smart decisions while shopping. Create a budget and shopping list with them that includes necessities such as fruits, vegetables, milk, and other healthy items. Ask your kids to include what they want, such as candy, small toys, or a special bakery treat. While shopping, select the essentials first, have your children do the math to figure out how much budget is left and what on their “want” list fits into the budget. Let them choose which “want” they’d like to fulfill.
Conversation 3: The Power of Saving
Be it in a piggy bank or a credit union account, encouraging your children to save money is an important first step in helping them develop healthy financial habits.
Talk with them regularly about how much money they have saved so far by counting the cash in their piggy bank or checking in on their accounts together. Encourage them to reach certain savings goals, such as $50 by the end of the year, and discuss how to set weekly or monthly goals to reach that.
An important life lesson is how compound interest works. While 20 years away seems like an eternity to a 10-year-old, talking with them about how interest and savings dividends work can encourage them to adopt a healthy attitude toward long-term savings strategies.
They can also learn about dividends in a shorter time frame by putting some of their savings into a certificate. They will see dividends posted over the term of the certificate, while also learning about delayed gratification. They may become so excited about the potential to earn more dividends that they decide to roll over the certificate when the term is over!
Conversation 4: How debt works
Teens about to head to college or enter the workforce need to know how debt works. They’ll need to have the right information to be able to make smart decisions about student loans, building a credit score, and obtaining secured credit cards and consumer loans.
How interest works. Talk about how loan and credit card interest works, and how the rate affects the overall expense of the loan. Talk about how often it is compounded -- a loan with rates that compound daily can be much more expensive than one that compounds monthly. Invite your kids to play with online loan calculators and use the Zogo app to learn the ins and outs of loans and debt in a gamified approach.
Student loans. For college-bound students, talking with them about how student loans options and how they work will go far in helping your family mitigate long-term debt.
Conversation 5: How to Avoid Scams
Sadly, scammers target kids in various ways, including through texts, social media, and gaming platforms. While kids themselves may not have much money to steal, the scammers may try to get parents’ financial information or use the kids’ personal info to steal their future credit by opening credit cards or taking out loans in their name.
Talk to your kids about how scams work and how scammers impersonate real companies to try to get personal information and credit card numbers. If they get texts or messages from people they don’t know, strongly encourage them to come to you first before they do anything so you can discuss it with them.
Be sure they know the tell-tale signs of a scam:
- Pretending to be from school or a business
- Says there is a problem or a prize
- Uses pressure so they don’t have time to think
- Instruct them to pay with cash, gift card, wire transfer, cryptocurrency, or a payment app
If you’re looking for more ways to connect with your children about money, SAFE can help. Attend one of our no-cost webinars, or schedule an appointment at one of our branches to discuss SAFE’s family banking options that will let you bank together!
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