When & What To Teach Your Children About Money.

Reading through the latest issue of Kiplinger I came across a great article about teaching kids about money issues that I thought I would share with you guys. I have written before about how I think personal finance needs to be taught in high school and this article takes the lesson one step further by advising parents to start talking to kids as young as 3-5 years old. And although some might find that a bit extreme, I think the advice given in the article is dead on. Here is a quick synopsis of what the author had to say about each age group:

3-5 Years Old

Think “big picture”, encourage the use of fun piggy-banks, teach them to put the right-sized coins in vending machines, don’t discuss long-term anything because time doesn’t mean much to a 4 year old!

6-7 Years Old

Start encouraging saving, provide a weekly allowance (they suggest an amount equal to half the age of your child), don’t necessarily tie the allowance to doing chores (I agree 100% with that, as they should not be paid for things they should be doing anyway), but rather to becoming financially responsible for little things they want, and give them opportunities to make extra money by doing/helping out with bigger tasks around the house.

8-10 Years Old

Help them open a savings account and encourage them to save, but allow them to spend a percentage of that money on anything they want.

11-13 Years Old

Remember that you are the parent and are still in control, stick to your message about money and responsibility (they will still listen at this age), make them chip in for their everyday expenses (movies, video games), introduce them to the stock market.

14-15 Years Old

Stick with cash and stay away from credit cards (really, do we need to encourage credit at 14 years old? Don’t think so…), encourage your kid to get a job (again, agree 100% – I was working at 14).

16-18 Years Old

My favorite line from the entire article is this: “…giving teens credit cards makes as much sense as letting them use drugs to they won’t turn into addicts”. Basically, teens do not need credit cards and they are not mature enough to handle them. Open a checking account for them and teach them about balancing it.

21+ Years Old

The author says kids should wait until they are seniors in college to have their own credit cards, and I agree. Having my own credit cards in college got me into loads of trouble as I really thought I was going to be able to pay them off the day I got a job. Fat chance! So other than assisting them in getting a credit card, you should also discuss retirement plans, mutual funds, health insurance, etc – you know, the grown-up stuff.

So, what do you think the author missed? Anything? Those of you with kids, what do you disagree on? Let me know, as I am curious what the readers think about articles like this one!

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Comments (14)

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  2. Miranda says:

    What a great resource! We have been teaching my almost six year old about money for about a year now. He is starting to get the hang of it. We opened a savings account for him at the bank, and he has three different jars at home that he puts money in (church donation, savings and spending).

    I like that this provides a guide I can use to further guide my son as he grows up.

  3. I agree with Miranda about adding a giving program. I don’t know about introducing kids to the stock market so early, but maybe I don’t give kids enough credit.

    As for what they forgot…how to make and keep a BUDGET is the the big one. Also, from what I see, savings seems to only be given glancing attention. Keeping up with the Jones’ needs to be given LOTS of attention because that’s all they know. That’s how EVERYONE acts at school. Teach them to be content and appreciative for what they have. Hope that helps!

  4. david says:

    Budgeting would be a good one to include, I agree. My parents taught me to save, but they did not teach me to budget.

  5. CreditMom says:

    I enjoyed this post. I also agree with the budgeting commet above. I found I was peeling off $20’s every time every time my 14 year old needed something. Instead of giving him an allowance I was just giving him money ad hoc. Of course he didn’t always remember to give me the change…who would?

    So, this week I gave him $50 for the week. This will include his going out money, lunch, and whatever else he wants. He also needs to put some money aside. If he spends all of his money in one day, he doesn’t get any more. Funny, this morning I asked if he was making lunch or buying and he said, “making”. Guess when it’s your dime you think twice before spending it!

  6. You should start teaching your children early the value of money. If you don’t, it may be too late and they will get their money values from their friends which may be a disaster.

  7. Start-Up says:

    I think introducing kids to the stock market at such an early age is kind of pointless. I don’t think I would have gained much insight into how it works at such an early age. I think budgeting and savings accounts are the best things you can teach your kids about.

    Also, I think kids should have credit cards as soon as they go to college. There are too many emergencies i can think of that having a credit card around would help with. Personally I had to fly to school, so a credit card made flying infinitely easier. Get a card with very low limits to prevent excess debt from piling up. Check the online account weekly to make sure they aren’t abusing the card. Really hammer home the idea that credit card debt is unacceptable. Find an online story about someone with terrible debt so hopefully they don’t have to learn with personal experience. Credit cards are extremely valuable to have as a safety net for college kids. Plus, it’s good to start working on your credit score at an earlier age.

  8. Personal finance needs to be taught in high school.

    I am totally agree with this. Financial planning is such an important part of life that everyone should know it at the early stage of life.

  9. Pinyo says:

    Good overview David. Although I tend to disagree with credit card, I can see why some kids *will* get in trouble with one.

  10. david says:

    I know I got in trouble!

  11. J-Bird says:

    Seems like a good plan, but is it realistic for a lot of parents to think they can keep their kids from getting a credit card until the end of university? It may be the system is different (I’m in Canada), but I know at our campus any kid who signed up at any of the 12 credit card booths could get a card, and there certainly wasn’t anything requiring parents to allow it. I agree that this plan has ignored budgeting, something that we could all do with learning early on.

  12. I agree on many of these points, especially the one about not connecting an allowance to chores.

    I also agree that budget training has to play a role here, and along the lines of what CreditMom said, giving your kid his allowance with the idea that it’s for a certain period of time accomplishes a couple of things, like budgeting and constant requests for money.

    We plan to do this with our children, but progressively increase the length of the allowance period and the amount of the allowance. So our kids might get $5/week at age 8, and $1000/year at age 16. Our kids will be responsible for purchasing everything that they want or need with this money, so school clothes, athletic fees, CDs (if they still exist), etc. will all be fair game.

    We also plan to teach them about credit cards and debt by allowing them to borrow against future allowance. With any luck, they’ll get burned by this in an environment with a safety net and therefore avoid the same mistakes with real credit.

  13. […] morning, sorting through all the wonderful RSS feeds that I’ve subscribed to, and I found this great article linked by Wide Open Wallet. I’m actually past the first stage for one of my kids, but with my […]

  14. Cameron says:

    This is a really great great article that I will pass along to some of my bestests 🙂 of friends with children.

    Parents talk to your college bound children about the dangers of CC-stay away from them. If not, there are student geared credit cards that work better for students and that will allow them to build up a credit history without too much risks.