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A good financial education for kids could help protect your children from a lifetime of money problems. The following article explains some benefits of early financial education and offers tips on teaching your kids to use money wisely.
The Federal Reserve Bank of New York reports that the average U.S. household owed $7,149 in credit card debt in 2020. Consider that this is just the median amount. Some households don’t have any credit card debt. Others owe tens of thousands of dollars.
The high interest rates that come with most credit cards make life unbelievably expensive for people who do not pay their balances in full every month. Unfortunately, people struggling with credit card debt often make minimum payments because they cannot afford to spend more on repayment. That situation increases the amount of time and money spent getting out of debt.
Consider a household that makes the minimum (4 percent) payment on a $10,000 credit card balance that carries an 18.9 percent interest rate. It will take the household nearly 14 years to repay the debt. By the time they bring the account to $0, they will have spent slightly over $6,365 in interest. Their expenses increased over 60 percent because they took on high-interest credit card debt.
Teach your kids to use credit cards responsibly by letting them practice with debit cards created specifically for young people. Top options include:
Greenlight offers real-world lessons in financial responsibility by letting parents create chore lists that add funds as kids complete tasks, automating allowance that goes on the card with no trouble, sending parents notifications every time accounts get used.
With Greenlight, you get to oversee your child’s spending, address potential problems, and let them make small financial mistakes so they can experience consequences before entering the “real world.”
GoHenry gives parents even more control over their kids’ spending. With the GoHenry card, you can block and unblock the account at any time, determine where your children can use their accounts, and set spending limits.
As long as you establish reasonable guardrails for your kids’ spending, GoHenry can teach them valuable lessons that will last a lifetime.
Jassby has many of the same features as Greenlight and GoHenry. Parents can set chores, manage allowance, and control how their children spend money. Jassby, however, is a completely virtual debit card that kids use with their mobile devices.
Contactless mobile payments are becoming more popular, so it makes sense to include this in a financial education for kids.
Recommended reading: Easy, Essential Rules for Giving Kids an Allowance
Research from Intuit—the company that makes Turbotax and Quickbooks—shows that 65 percent of Americans do not know how much money they spent last month. Worryingly, only 23 percent of Gen Z and 27 percent of Millennials knew how much they spent.
These results suggest that most households do not follow budgets. Make budgeting a part of your financial education for kids so they can see how much easier life becomes when they plan how to use their money.
Without a budget, households and individuals might have less control over their money. That probably don’t have plans that include saving for big purchases and investing for retirement. Life may seem relatively easy for young people spending money without thought. Several decades later, though, they will find that they do not have the resources they need to maintain their lifestyles.
How you teach kids to budget will vary depending on their ages. Ideally, you should start talking about budgets as early as three years old. Obviously, you won’t go into detail. An introduction to budgeting will prepare them for more detailed planning when they become teenagers, though.
Ages Three to Five
Young children don’t know enough math for most types of budgeting to make sense. You can’t show them a handwritten plan and expect them to understand what it means. You can, however, introduce them to concepts like giving, saving, and spending.
Start by giving them three jars and asking them to divide their money between giving, saving, and spending. You can set some rules for how much they had to each jar, but you should also leave plenty of room for consequences. A child that didn’t save enough money to buy a popular toy will learn an important lesson quickly.
Ages Six to Twelve
People learn the fundamentals of math between the ages of six and twelve, so you can start adding more detail to their budgeting. Encourage them to set goals, such as saving enough money to buy a video game system scheduled to come out next year.
Ask your child to determine how much money they need to save each week to purchase the system when the company releases it. You may need to help a little, depending on your child’s age.
Make sure your child chooses an obtainable goal. You want them to experience the satisfaction of following a plan and saving enough money to purchase an essential item. An unobtainable goal will not reinforce them to keep saving. It could even have the opposite effect.
Recommended reading: Help Your Kids Build Their First Budget
As your teenager nears 18, you need to give them more responsibilities and control over their money. Help them create a budget, but make them responsible for following it. By now, the budget should include expenses like payment for mobile phone service and car insurance.
If your teen plans to attend college, remind them that saving now can make their college years much easier.
Slowly give your teenager more responsibility. By the time they’re old enough to move out, they should have the budgeting skills needed to thrive.
It’s never too early to start teaching your kids about responsible spending, saving, and investing. Make your children feel like they have some control over family finances by asking them about how to use the household’s income.
Should you repay debt or spend more money on entertainment? You may not always get the answer you want. Think of mistakes as learning opportunities.
By teaching your kids now, you make it more likely that they will become responsible adults who know how to use money wisely. The lessons should give them easier, more enjoyable lives without significant financial worry.