How RSUs Can Impact Work Comp PremiumsFinancially-aware kids grow up to be financially-savvy adults. By teaching your children about the value of money and the importance of saving, you can prepare them to successfully manage money when they grow up.
Money Doesn’t Have to Be Stressful
Many adults are stressed about money. In a Capital One survey, 77% of participants reported feeling anxious about money and 58% felt that finances controlled their lives.
As a parent, you may want to shield your children from this stress. However, a smarter approach is to educate your children about money matters to help them avoid the stresses associated with money problems as adults.
Many young adults wish they had learned more about finances. In a poll of UK adults conducted by the Centre for Social Justice, 44% of respondents said they’d be in better shape financially if they had received more financial education and 68% of young adults with financial problems blamed a lack of money management skills.
It’s unlikely young adults in the U.S. are faring much better. The Milken Institute says many individuals in the U.S. lack the basic knowledge and skills needed to navigate the complexities of modern finances. To determine financial knowledge, individuals received a series of financial questions covering various categories. Only 40% of individuals demonstrated overall financial knowledge.
Teaching Kids About Money
By starting your kids’ financial education when they’re young, you can give them the knowledge and tools they need to successfully manage money. You can also instill values and help them form habits that will last a lifetime.
Understanding Money
Before children can learn to manage money, they need to learn what money is. Even young children can learn how to count money and exchange it for items. According to Psychology Today, it’s better to stick to cash and coins than cards for young children.
Another way to learn about money is to start earning it. The American Institute of CPAs (AICPA) says 66% of parents give their children an allowance and the average amount is $30 a week. This can be a wonderful way to start conversations about money. This handout includes an allowance checklist with key points parents should discuss with their kids, as well as a weekly budget chart.
Saving Money and Setting Goals
According to the AICPA, only 3% of parents say their children primarily save their allowance. You can teach your children better money management skills by encouraging them to save their money.
When adults save money, it’s often for a specific goal, whether that’s a vacation, a house, retirement, or just a rainy-day fund. Children can also learn to save for specific goals. For example, they can save up money until they have enough to buy a specific toy they want. This teaches them the value of money and the habit of saving.
Kids often save money in a piggy bank. You can take this to another level by giving your kids more than just one. Bucketing is a common method adults use to save money for multiple goals at once. They put money into different buckets (or savings accounts), which represent different goals. You can do this for children with piggy banks or jars.
To do this, you and your child need to decide on multiple long-term and short-term savings goals. Another option is to use one bucket for money your child can spend immediately and another for money your child will save. You can use a third bucket for money your child can donate to charitable causes or use to buy gifts for other people. Label each piggy bank or jar with the goal or purpose.
More Advanced Financial Topics
As your kids grow up, you can start working on more advanced financial topics. There are several important topics to cover, including:
- Saving for college – The Junior Achievement USA Teens & Personal Finance Survey found that rising education costs have impacted post-secondary education plans for 69% of teens. Parents can help their teens create a financial plan for college costs.
- Monthly budgeting – When young adults move out of their parents’ homes, they need to figure out how to budget to afford rent, bills, and groceries. This is easier if they have experience before they’re on their own.
- Debit cards versus credit cards – Student loan debt is only one type of debt college students have to worry about. According to U.S. News, 46.1% of college students have credit card debt. Debit cards may seem safer, but overdraft fees can add up if the cardholder isn’t careful.
- Taxes – As TurboTax explains, minors claimed as dependents may not have to file taxes if their annual income falls under the standard deduction. However, they may still choose to file and may receive a refund on withheld earnings. This is a good opportunity to learn how to file taxes and recover money.
- The stock market – The Stock Market Game is an online simulation that helps kids of all ages learn about investment and risk.
While you’re raising financially-aware kids, be sure to model positive practices by focusing on your own finances. Heffernan Financial Services provides investment advisory services, portfolio review and management, insurance planning, and other services to help individuals achieve financial stability. Learn more.
