Financial Skills for Children
Financial concepts like budgeting, saving, investing and credit are not taught in school, so it’s critical for children to start learning them at home. Ensuring your kids are financially savvy will give them an edge, better prepare them for any financial challenges they may face, and make it easier for them to achieve their financial goals as adults. It will also instill core values like appreciation, delayed gratification, patience, self control and critical thinking, while helping them to develop strong work ethics. Many adults are struggling financially because they don’t know how to manage their budget. It’s important to teach children financial concepts early on, so they can acquire the skills needed to manage their finances wisely when they become adults.
How parents can encourage financial literacy
3-5-year-olds: Delay gratification
Teach children in this age group that if they really want something they should wait and save for it. Money lessons learned at this age set the tone for later on. If the kids learn to delay gratification at this age, they will be successful as adults.
Activities for this age group
- Whenever your kids queue for something, use that opportunity to teach them the importance of waiting.
- Allow children to earn money by running their own yard sales and lemonade stands during summer.
- Have three jars labelled “Sharing,” “Saving” and “Spending” for each child. Each time the kid receives money, put a third of it into each jar. The kid can save what is in the “saving” jar for big purchases, use the money in the “spending” jar for small things like candy, and donate the money in the “sharing” jar to needy neighbors or a friend’s cause.
- Teach each kid how to set a goal such as buying a particular toy and save the money to reach this goal in the “saving” jar. Then help the kid by rewarding him financially for performing household chores. Every month you can count the money together and discuss how much more is needed to reach the goal. This makes the child grasp the importance of saving, waiting and focusing on a goal.
- When you take children to the store, tell them that you are there to buy something else, not to buy what they want. Make them understand that going into the store doesn’t mean you’re going to buy something for them.
6-10-year-olds: Choose how to spend money
Children aged 6-10 are ready to learn that money is finite and they have to make wise expenditure choices. Combine that with the “sharing,” “saving,” and “spending” jars.
Activities for 6-10-year-olds
- Explain your financial decisions to the children. For example, explain that you bought a certain item in bulk because you save money per item, or that you always buy generic apple juice rather than a brand name because you save 50 cents while getting the same taste.
- When you take kids to the supermarket, let them take money out of their “spending” jar and hand it over to the cashier to pay for what they want. Then they learn that things cost money and they have to live with their choices.
- When shopping, share your decision making by asking, “Do we really need this? Can we skip this item since we are eating out? Should we really borrow from the credit card for this or should we do without? Maybe this item costs less in another shop? Shall we go to the discount store and get two of this for the same price?”
11-13-year-olds: Grow savings faster through compound interest
For this age group you can move away from saving for short-term goals to saving for long-term goals. For this, teach them the importance of earning compound interest on savings and on previously earned interest.
Activities for 11-13-year-olds
- Do not dish out allowances for breathing. Instead, inspire your kids to do extra work around the house for a fee, to help in the family business, or to do jobs such as cleaning, babysitting, and lawn-mowing in the neighborhood. This will instill the habit of hard work and the knowledge that money must be earned. It will also enable them to save. Any financial mistakes are opportunities for learning.
- Use specific numbers, such as saving $100 per year, on a spreadsheet to show your kids how the money will grow from age 14 to 25 and from age 20 to 25 to show them the difference. Then they will see the importance of saving from an early age and the amazing effect of compound interest.
- Once the children understand the principle of compound interest, they can play around with compound interest calculations on Investor.gov to see how much money they can earn if they invest certain amounts over a given period at a certain interest rate.
- Encourage your children to read inspiring stories like this one to learn how others used compound interest to their advantage.
- Encourage the children to set longer term goals. For example, a child can save to buy a computer or an iPod instead of buying snacks at school every day. This is a good opportunity to teach children about giving up immediate gratification in order to save for a future and larger gratification.
- Teach them about opportunity cost. Since money is finite, they must learn that if they buy their favorite sneakers, there won’t be money left to buy a video game.
14-18-year-olds: Compare the cost of several colleges
It’s time to encourage kids to go to college by showing them how much more college graduates earn than people without degrees. Then search for the “net price calculator” on college websites to determine the total cost of attending each college including all expenses besides tuition.
Activities for 14-18-year-olds
- Once you start discussing college, be honest about what your family can afford every year. This helps children to be realistic about which colleges to apply to.
- Encourage your children to use the College Scorecard to compare how much each intended college will cost. The scorecard also helps them to see their employment prospects, and how much a student loan will affect their lifestyle after graduation from each of the colleges. Together, perform a cost-benefit analysis of the investment in college education and the later pay-off.
- If you cannot afford to pay 100% of your children’s education, let them estimate the financial aid that they will need using the FAFSA4caster tool. Encourage them to look into available college financing such as grants and scholarships, and to work hard in order to qualify.
- Teach them that student loans are not an option to fund their education. They can manage on:
What you have saved and what you will contribute every year.
What they earn while working part-time now and at college.
By doing transfer programs at the community college.
Going to an in-state university.
Applying for grants and as many scholarships as possible a year before graduating from high school.
- Open a bank account for the money the children are earning in high school. This gives them a chance to manage money at a higher level, helps them to save for college, and prepares them for managing a substantial account when they get older.
Kids in this age group are influenced by what they see on social media and tend to compare themselves to others who get expensive 16th birthday parties or brand-new cars. Teach them to appreciate what they have and stop comparing themselves to others. Also remind them you are saving for their college education.
Over 18: How best to use credit cards
Credit cards are easily accessible and it’s very easy for college students to get into debt. Therefore, teach your college-going children to avoid credit cards unless they can pay the whole balance owed at the end of every month.
- Teach your kids how to budget and encourage them to save enough money to live on for 6-9 months so that they won’t borrow for emergencies. Also, tell them that they can have a credit card for building a good credit history if they are disciplined.
- Make sure they understand that if you cosign on their credit cards, any late payments will affect your credit history.
- Together with your children, use sites like Bankrate, Creditcards.com, Credit.com, or Cardratings.com to find credit cards that offer low interest rates and no annual fees.
- Teach the children to avoid using credit cards for non-essential everyday items, but to use them for emergencies that they cannot cover with their savings.
Recommended Reading (Ages 3 - 8 years)
7 Best Children’s Financial Literacy Apps
This financial literacy app involves rescuing, feeding and playing with endangered animals. Kids can earn money by planting gardens and spend it by buying food for the animals and decorations for their treehouse. In the process they learn about budgeting, giving and setting financial goals.
This app is an electronic version of the classic piggy bank designed for children 6 to 8 years old. Like the classic piggy bank, it teaches kids the value of saving. Users can set goals of what they want to save for and they can add an image of the item. The app will automatically calculate how much money needs to be saved and how many months are required to reach the goal. The users can visualize their savings in a virtual piggy bank and track their allowances in three different categories: Save-It, Spend-It and Share-It. PiggyBot is free for iOS devices.
Renegade Buggies is a fast-paced game. It received a REVERE award that honors "high quality resources that educate learners of all ages, in all media, and in all educational environments." It teaches financial literacy while focusing on saving as much as possible by buying in bulk and comparing unit sizes while shopping for groceries. It is available for Android and iOS devices.
Star Banks Adventure, available for iOS, is a financial literacy fun game created by financial experts. It aims to teach children fundamental financial concepts which they use to save the planet Polaria from drowning in financial anarchy. Whenever they save money, they use the coins to purchase in-game upgrades which help them to achieve financial goals. While answering tricky questions, solving puzzles and having fun, they learn about financial planning, saving, investing, inflation, and asset allocation.
Savings Spree won a Parents Choice Award in the category of Mobile Apps. It uses interesting age-appropriate visuals to promote healthy financial habits, teaches the effects of financial decisions, and helps children to understand the psychological and emotional effects of earning and using money. It has practical exercises for imaginary earning, spending, short-term saving, and long-term saving. It also teaches about the risks linked to impulse buying and explains concepts like unexpected costs, investing and charitable giving. It is available for $5.99 on iOS devices.
You’ve probably heard that FamZoo is a financial literacy app that provides a parent-monitored environment for older children who can control personal spending. It enables children to gain hands-on money management experience. Parents can set up bank accounts as bankers for their kids, and provide debit cards and keep records of savings, spending and giving. Its goal is to help kids understand how money works, how to budget, how to save, how to prevent credit card debt, and how to purchase items safely online. It can track chores and odd jobs and handle money requests between family members. Its available for Android and iOS devices.
Celebrity Calamity is another financial literacy app that won an award. It’s an exciting game that features celebrities and their spending habits. Kids manage the finances of their favorite celebrities and prevent them from overspending. When the players live within their means they are rewarded, but when they spend recklessly, they receive hefty bills that must be paid eventually. In the process the kids learn how to properly manage money.
Khan Academy offers a broad curriculum on a wide range of academic subjects for levels K – 12 and early college level courses, including preparation for SATs. They are a non-profit organization “with the mission to provide a free, world-class education for anyone, anywhere.” Although this organization goes way beyond the scope of teaching financial skills, we love what they are doing to inspire and empower kids, parents and teachers through their educational platform. And since joining is completely free, no child or adult is left behind. For more information visit Khan Academy.
Mission and Values
Many people are struggling to manage their personal finances and this often leads to affecting their credit as well. There are many ways to spend money, however, there are just as many ways to make money as well; but only if you’re aware of them. Our mission is to increase financial literacy while creating opportunities for financial growth. Whether you are looking to develop a solid budget plan, improve your credit profile or maximize your income, we offer resources and information to meet you where you are, and help you get to where you want to be. As a premier financial hub, we are dedicated to helping our subscribers spend less time worrying about how to fund their financial goals, and more time achieving them.