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One of the most important things we can teach our children is how to successfully manage their money. This, along with good manners, will help them achieve their goals as they become adults.
Sharing good money management techniques with your kids can start as early as elementary school. In fact, we recommend the following tips to teaching your children good habits based on their age.
Open a Savings Account for each of your children at the age of 5 (or as close to it as possible).
Give the new Savings Account a Nickname, using the respective Child’s Name so you can periodically show them their savings account balance.
Fund the account with around $100 to get them started.
Each time your child receives money as a gift, have them deposit half into their new Savings Account and spend the other half on something fun.
When your child wants to buy something, you can show them the balance on their account, so they can see how much it would cost them to purchase the item. This will give them an idea of how long it takes to save for certain items.
If possible, provide your child with opportunities to make money. You can give them the option to unload the dishwasher, take out the trash, and/or unload groceries for $5 per chore. Then, have them put half into their Savings Account and spend the other half on something fun. They may want to put their “fun money” into a Piggy Bank and save it up for something bigger.
Make sure your child has a Savings Account designated for them at the beginning of high school. If not, open one as they start their freshman year.
Apply the same practice as noted above, encouraging them to put half of the money they receive into their Savings Account, spending the other half on something fun.
Offer your child various opportunities to make money around the house for doing chores such as mowing the lawn, cleaning the family bathroom, taking out the trash, etc.
If your child is interested in having a car at 16, or any other big purchase, they may want to use their Savings Account to save for it. Consider telling them you will match whatever they save, if this fits in your budget.
Show them their statements and screenshots of their Savings Account balance, so they understand how long it takes to save money.
When they turn 16, take them to the Credit Union to open a Checking Account and a Savings Account in their name. When they earn money, they can put half into their Savings Account and the other half into their Checking Account. Help them review their transactions weekly and balance their budget monthly.
These young adults should be entering college with some knowledge of how to manage a budget, along with their own Checking and Savings accounts.
Prior to dropping them off at school, go through their monthly expenses. Also review their monthly income, whether it be from a job, their allowance or from a student loan.
Have them calculate how much they need to cover their monthly fixed expenses: tuition, rent, utilities, cell phone, food, followed by how much they have leftover to spend on fun things.
Work Income + Allowance + Student Loan $
Tuition + Rent + Utilities + Cell Phone + Food
Leftover Each Month to Either Save or Spend
After their first year of college, we recommend they apply for their own credit card with limited spending power, maybe $500. This will allow them to start to build credit and further learn how to manage their money.
Last but not least, it is important to remember that setting a good example for our children is always the most effective way to teach them good habits, the same is true for instilling good money management skills. Don’t be afraid to share how much things cost relative to how much you make, let them know how much you have to spend weekly and how you budget to meet your family’s objectives. Talking about money can be fun and should be started early, so the subject is comfortable for all.