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!