Kids and Money: Seven Tips

As community bankers we frequently visit classrooms to talk about banking and money management.

For the little kids we focus on the difference between needs and wants and on the importance of saving money. For the teens we talk about more complex topics like how banks and credit works. We talk to them about what happens when you borrow money, why everyone needs a checking account and what credit scores mean.

We do this because we believe financial education is important and we are happy to provide this service to youngsters and young adults in our communities. However, we hope that parents will spend some time educating their kids about these topics as well. Here are seven tips to get you started.

Teach them about saving. Whether it’s a piggy bank, a clear glass jar or a passbook savings account, teach your kids to save money and to be excited about seeing it grow. Talk to them about how saving money means they’ll have funds for something they really want or need in the future.

Talk about the difference between needs and wants.   This is a lesson that a lot of adults could use as well. In talking to third graders with our Teach Kids To Save program, we find that they have an excellent grasp on what they need and what they want. They need a pair of shoes. They want the kind that light up when they walk. By the time they’re in high school, we find it’s often harder to get them to admit they don’t need the latest iPhone.

Talk about the cost of things. As you’re grocery shopping or making decisions about purchases, initiate a conversation about why you are buying the off brand canned goods or how buying in bulk saves money in the long run. Help them understand that even the small purchases call for decision making.

Give them a chance to earn money – Whether to give allowance or pay for chores is a personal decision each family must make. We will say that there is wisdom in providing kids with the opportunity to manage money they had to earn. Modest pay for chores or allowance gives them the chance to learn about responsible spending and saving. If you have teenagers, encourage them to take on a part time job or to do odd jobs in the neighborhood.

Help them open a Student Checking Account. They will need one eventually and learning to manage an account now will help them later in life. Click here to learn more about how Student Checking at VCNB works.

Discuss Debt. This is a good subject for everyone but especially for teens who have their eye on car ownership. Talk to them about things they might need to borrow money for – like a car, college education and house – and about saving money for a down payment. Also talk about how to manage a credit card responsibly and why they should avoid charging more than they can pay off in a month.

Talk savings. Teach them about the three most important kinds of savings for adults: personal, emergency and retirement. While retirement savings may not seem like a priority to a teenager, it will be important in a few years once they’re starting out in their career.

Your kids are going to learn about money from someone. Wouldn’t it be better coming from you?

Teach Your Teens About Money

Don’t know where to start when it comes to teaching your teens about money? We’ve broken it down into four basic categories to make it easier.

Handle a Paycheck 
Life is expensive for a teenager. They want new clothes, money to socialize, gas in the tank and the latest and greatest gadget. Up until now, their expenses have been minimal and their weekly allowance has probably been enough to cover their wants.

If they’re old enough, this is an optimal time to enter the workforce. A part-time job will teach your teen responsibility and the value of a hard-earned dollar. It also provides opportunity to learn about taxes and budgeting.

Sit down with your teen when they earn that first paycheck and discuss the concept of taxes. Show them how taxes impact take home pay and teach them to examine each pay stub for accuracy. If they are 18, encourage them to open a checking account. Regardless of their age, a savings account will be an important tool as well.

If your teen is too young for a job outside the home, they may be able to make extra cash babysitting, raking leaves for neighbors or doing extra chores around your home.

Develop a Budget
Regardless of how little or how much money an individual makes, having a written budget goes a long way toward stabilizing finances, ensuring that savings goals are kept and bills are paid on time. The first step to developing a budget is to simply list all sources of regular income such as allowance or job earnings. Then have him or her list the expenses they typically pay. Demonstrate that their budget may be consistent or may fluctuate monthly. For example, they may have prom related expenses that only occur in the spring while their car insurance premium remains the same each month.

Talk to your teen about paying themselves first. By setting aside a percentage of their income each month when they’re young, it is easy to develop a savings habit that will last a lifetime. It’s also a good time to set aside funds for those large life expenses like a new car, college education or an emergency fund.

After setting aside some for savings and itemizing their bills, add up the expenses and compare that with the income. If they are spending more than they earn or are spending most of what they earn, talk to your teen about their spending decisions. Are there ways to cut costs or eliminate a frivolous expense?

Once their budget is set, encourage your teen to regularly review and stick with it.

Save for the Future
We touched on it above but the teenage years are a great time to start saving for large life expenses. You provide for their current needs meaning that their expenses should be pretty low. It won’t be long before they are on their own, responsible for their own food and shelter. Life will never again be as inexpensive as it is now and you should encourage your teen to take advantage of these circumstances.

If they don’t have a savings account, assist them in finding a bank and opening one. Then encourage them to tuck away as much money as they can.

Be Smart About Credit
A good credit score will open doors for your teen someday. A good credit score will enable your son or daughter to access better rates for home loans, car loans and even insurance. A good credit score may help them get a job or apartment. A bad score though could wind up costing them a lot of money as well as employment or that apartment in the neighborhood they love.

To help them start out on the right foot, consider helping your teen acquire a credit card with a low limit. Teach them to use the card responsibly, never buying today what they can’t pay for tomorrow. Teach them to pay the balance every month to avoid interest charges.

If you are terrified to hand your teen a credit card, consider starting with a prepaid spending card like the prepaid MasterCard® cards we offer at VCNB. It looks like a credit card but is pre-loaded with funds. It typically is accepted wherever Mastercard is accepted but there is no risk of them running up debt. Once the pre-loaded funds are gone, the card no longer works until you add more.

One More Thing
Keep in mind that your teen is approaching young adulthood. In fact, they sometimes seem very grown- up already. However, your teen is still a kid. Encourage dialog about financial decisions and the questions they have concerning money management. Money and credit will impact their quality of life for the rest of their life. Encourage them to start on the right foot today to secure a lot of bright tomorrows.