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22 Money Basics Questions and Answers

Are there activities I could use to teach my child about needs and wants?

Understanding the difference between needs and wants is a bedrock concept that can lead to a lifetime of better financial decision making.

Needs include the basic things we need to survive – food, clothing, and shelter. But we also need to earn a living so we can pay for those basic needs and things we want. So, we need reliable transportation and the tools and resources necessary to do our jobs well. We also need to build and protect our assets so we can keep meeting our needs in the future – this includes emergency savings and insurance.

Wants are all the upgrades and other things that would be nice to have but aren’t necessary for living, earning and protecting what we have.

Knowing the difference is the key to purchasing decisions, and the payment choices that young people will one day face.

So here are some activities you can try with your children:

  • When you are out shopping, point out essentials such as food and clothing, and ask your child to describe items that she may want but are optional.
  • Talk about how your family decides what to buy and what to pass up. Which is more important: Buying cookies or fresh fruit? Soda or milk?
  • Draw a circle and divide it into sections for food, rent or house payments, clothes, and "optional items," to show that there is a finite amount of money to spend.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

How can I explain to my children where money comes from?

If you’re talking to a younger child, say three to five years old, the easiest way is to explain that the money your family spends and saves comes from working. This may be hard for younger children to grasp, especially these days when most paychecks are deposited directly from your employer and cash comes out of the ATM.

Describe the jobs you, your spouse and others in your family go to every day. Walk through the neighborhood or town and point out people working, like the bus driver or police officer.

You may also want to explain that some people start their own businesses like stores or restaurants. They make money through profit, by buying goods or resources at one price and charging customers enough to cover their costs, time, and a return on their investment. You could also encourage your children to earn their own money by setting up a lemonade or cookie stand.

If you have older children who are looking for more literal answers, the Bureau of Engraving and Printing prints paper currency and the U.S. Mint produces our coins. The Federal Reserve regional banks distribute both.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

I have a pre-schooler who is starting to ask for treats when we go shopping. What can I do to start teaching her that things cost money?

Adults have a clear understanding that items in stores cost money, but put yourself in the preschooler’s shoes. To them, everything is free. All of their needs are provided. They may know what money is, but they don’t attach value to money. For example, young children will naturally think that a nickel has more value than a dime, because it’s bigger.

A good way to start teaching preschoolers about money is have them identify coins and learn their value. Dump a pile of change in the middle of the floor and count pennies. Make stacks of five and explain that a stack is equal to one nickel, or that five stacks are equal to a quarter.

Talk about things that cost money and things that are free. Ice cream costs money, but playing with a friend is free. Clothes and even gas for the car cost money, but going to the playground does not.

Finally, the next time you’re at the store, show them the price tags and discuss how much their favorite foods cost. And, let them watch as you check out. If you pay in cash, let them hand the money to the cashier and receive the change.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

I want to help my daughter start her credit history. What should I do?

First, order a copy of her credit reports from Equifax, Experian, TransUnion – the three largest national credit reporting agencies. You can order the reports free every 12 months at annualcreditreport.com. Even if she’s never applied for credit before, it’s a good idea to order the reports to check for:

  • Mistakes – be sure her personal information like her name, address and Social Security number is correct. Also see if the report contains accounts she did not open or debts that don’t belong to her.
  • Signs of identity theft – like accounts she never opened, that are listed as late or unpaid.

If you find mistakes, get them corrected right away . Once you’re sure your daughter is starting with a clean slate, there are a number of ways she can start building her credit. Your credit history starts when creditors begin reporting information about you to the consumer reporting agencies. So some things, like debit card use or paying utility bills, may not build credit. Here are some options you can consider:

  • Secured credit cards.These typically require a cash security deposit. The larger the security deposit, the higher the credit limit. Secured cards are often used to build credit history.
  • Authorized user.You can add your daughter to your credit card account as an authorized user. If you have a good credit record, adding her to the account can help boost her credit score. But, if you have a bad credit history, it would reflect poorly on her too. Also, you will owe the amount that she charges.
  • Store cards.These are cards that she can use at only one store – like a department store – or affiliates of that store. Store cards are typically easier to get than general purpose cards, but they often have high interest rates.
  • Your child might also ask you to co-sign or become a joint applicant with her on a card. Caution: If you co-sign, any late payments she makes will be reported on your credit card too. 

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

I want my children to learn how to compare prices. What are some things I could try?

Comparing costs and benefits is a great way to build critical thinking skills and give your children practical lessons in decision making. One key thing to remember is to focus on both costs and benefits – that is, the best value, not just the lowest price. These are exercises you can make very simple for younger children and more complex as children get older.

For example, when you are shopping at the grocery store, you could hold up two boxes of detergent of different sizes. Have your child find the prices and the amount of detergent in each bottle or box. Point out the unit pricing signs, or do some simple math (or let your child use a calculator on your smart phone) and ask which one they think offers the better value for you. You could do the same exercise online, by comparing toy prices on shopping comparison sites. Here the variables might be the retail price and shipping costs.

The idea is to show your child that prices will vary by size, features, quality and retailer, and to let them start forming judgments about features versus cost. Be sure to model this behavior in the store as well. If you automatically reach for a specific brand, ask yourself out loud if it is the best deal. Compare your favorite brand’s price with other sale items. Or, ask your children to find the better deal and let them keep the money they save you.

As your children get a little older you could start talking about other products that might be more difficult to compare – a new bike or car, for example. If you will need to finance that car, work together on comparing loan terms and rates.

Get pre-approved before you step on the dealer’s lot. You’ll have a much stronger bargaining position.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

I want to teach my 11-year-old about compound interest. Is there an easy way to illustrate it?

Compound interest is when you earn interest on both the money you’ve saved and the interest you earn.

So let’s say you invest $1,000 (your principal) and it earns 5 percent (interest rate or earnings) once a year (the compounding frequency). After the first year, you would have $1,050 – your original principal, plus 5 percent or $50. The second year, you would have $1,102.50. That’s because the next interest payment equals 5 percent of $1,050, or $52.50.

Increasing the compounding frequency or your interest rate, or adding to your principal, can all help your savings grow even faster.

You can teach compounding using your own change jar and there are lots of good resources on the web.

For the low-tech method, dump your change jar out on the floor and tell your children they will invest $1 at 10 percent interest. Then run through a simulation like the one above, calculating the next interest payment on the principal-and-interest total each time.

For a visual illustration, you can download this poster (PDF) from The FINRA Investor Education Foundation’s SaveAndInvest.org website. It shows what happens when you save $25 every week in an account that pays 5.5 percent and compounding monthly.

TIP: It’s hard to find accounts or real-world investments that pay a steady 5 percent or 10 percent return. But if you want to encourage your child to save, consider adding a matching contribution – say, 25 cents for every $1 saved. That could help boost your child’s “interest.”

You can also watch this video by the Financial Literacy Center, a joint center of the RAND Corporation, Dartmouth College and the Wharton School. It’s for a slightly older audience – probably college students – but it illustrates compounding in way that most pre-teens and teens would understand. It uses the rule of 72, which basically says if you divide 72 by your rate of return, you’ll find out how fast your money will double in value. For example, if you had $1,000 that was earning a 6 percent return, it would grow to $2,000 in 12 years (72 divided by 6 equals 12).

You can also crunch some numbers using different rates, periods of time, and compounding frequencies, at the Securities and Exchange Commission’s website Investor.gov.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

I've always tried to save for a rainy day, now my son is away at college and I want to get him to start saving too. What do you suggest?

Suggest automated savings. If he has a steady income – from a part-time or full-time job, for example – he may be able to set up a payroll deduction from his employer. He could also set up an automated transfer to a savings account through his bank or credit union.

It’s also a good idea to talk about how much he should save. Some experts suggest saving three to six months’ worth of expenses. That’s a good target, but it may be hard to reach for a young person just starting out. Talk about some recent emergency expenses you or he have had recently, like a car repair or repairing a crashed computer. You can use these sample expenses as targets. When these targets are reached, then your son could aim higher.

Because he’s saving for emergencies, be sure you talk about keeping the money safe, like in a federally insured bank or credit union saving account. He should also be able to get to the money quickly when it’s needed, so accounts that penalize early withdrawals or that have higher transaction costs, like certificates of deposit or investments, might not be the best options.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

My children are 6 and 8 years old. What should they know about money at that age, and what I can I do to help?

By the time children are in grade school, they are starting to know what money is where it comes from and the basics of needs and wants. But now is a good time to discuss choices and stimulate critical thinking. Here are some milestones you should look for and activities that can help your children reach them.

You need to make choices about how to spend your money.

  • Include your children in some of your small decisions. For example, at the grocery store, explain why you pick one item over another.
  • Give your children a few dollars and let them choose which fruit to buy.
  • When shopping with your children, ask yourself aloud: Do I need this item? Can I borrow it? Would it cost less somewhere else?

It's good to shop around and compare prices before you buy.

  • With your child, compare prices for a particular toy at various online or brick-and-mortar stores.
  • Use coupons and discount cards, and show your child how much you are saving.
  • Consider allowing her to keep part of the savings, if she helps clip or print out coupons.

It can be costly and dangerous to share information online.

  • Know the websites your child visits.
  • Decide which websites are appropriate, and block any inappropriate sites using parental control software.
  • Make it a rule that your child never gives out any personal information – like her birthdate, address, phone number, or school – when on the computer.
  • Don't allow her to buy anything online without your permission.

Putting your money in a savings account will protect it and pay you interest.

  • Visit a nearby federally insured bank or credit union with your child.
  • Ask about the interest rate on a savings account.
  • Discuss with your child how money in savings accounts is protected by federal insurance.
  • If the bank goes out of business, she will get her money back.
  • Open a savings account for your child.

This content was taken from Money as You Grow, an initiative of the President’s Advisory Council on Financial Capability (2010-2013). For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

 

My daughter just got her first paycheck and was shocked at how much was taken out. What should I tell her about taxes and other deductions?

First paychecks are a great time to introduce the issue of taxes and withholding, and to prepare your daughter for filing her first income tax return.

Start your talk by discussing the difference between gross pay (before taxes are taken out) and net pay (take-home pay). Then go over the various taxes and other deductions from her check.

When she started her job, she filled out a W-4 form. This is what established the amount withheld from her paycheck. You can use the IRS’s tax withholding calculator to see if too much or too little is being withheld. And she can update her W-4 at any time.

Also mention that the more money she makes, the more she will likely have to pay in taxes. But not all her money is taxed at the same rate. First, she will automatically receive a standard deduction ($5,950 for tax year 2012 ) and possibly other tax credits when she completes her tax return.

We have a progressive income tax structure in the U.S. For example, for the 2012 tax year, single filers paid a 10 percent federal income tax on the first $8,700 of taxable income. The next bracket – from $8,701 to $35,350 is taxed at a 15 percent tax rate. So, if your daughter will have a taxable income of $30,000, the first $8,700 would be taxed at 10 percent, and the remaining $21,300 would be taxed at 15 percent under the 2012 tax rate schedule.

The other deductions in her paycheck are more straightforward. There may be income tax withholding from her state. And there’s FICA. This stands for Federal Insurance Contributions Act and is the money taken out to pay for Social Security and Medicare.

If your daughter is receiving health or retirement benefits, contributions for these may be coming out too.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

My kids are asking about whether to enroll in their employers’ 401(k)s, what should I tell them?

Do it! The sooner your children start saving for retirement, the easier it will be to save.

Use the Compound Interest Calculator on the SEC’s website, Investor.gov, to run different saving and retirement goal scenarios to illustrate this point. Start with a fixed goal, like $1 million. Then show them how much they’d have to save each month if they start at 22. Next see how much they’d have to save each month if they started at 42.

Generally, 401(k)s include selections of mutual funds. These invest in baskets of stocks, bonds, or a mix of both, and are either actively managed by a professional money manager, or built to replicate the performance of a broad stock market index, like the Standard & Poor’s 500-stock Index.

Investor.gov has a lot of information on how to balance a portfolio, and what should be considered.

There are also a few things they should avoid. First, if company stock is offered, be sure it’s balanced against other investments in the portfolio. Even if the stock is going through the roof, placing all your eggs in the company basket could be a recipe for disaster. Second, avoid borrowing from the 401(k) if possible. When money is pulled out of a 401(k) it isn’t there to grow. Repaying the loan can also cut into contributions. And, if your kids lose their jobs, the loans would have to be repaid in full or they could face tax penalties.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

My kids are leaving the nest and starting their careers, what should I tell them about saving and investing?

For young adults, starting to save early for retirement is important and so is preparing for emergencies. Here are a few discussion points you can use.

A great place to save and invest money you earn is in a Roth IRA.

  • If your children have jobs, encourage them to open Roth individual retirement accounts.
  • Explain that interest in a Roth IRA grows tax-free for life.
  • Experiment with different amounts of savings and interest rates. Use a compound interest calculator at investor.gov.
  • Use the "Rule of 72" to estimate how many years it would take to double your money. If you invest in an account that earns 8 percent interest, you'll double your money in nine years (72 divided by 8 is 9).
  • Explain to your child that once he starts a job, he may be offered a similar account at work called a 401(k). In a 401k, he can deposit pre-tax dollars through a payroll deduction. Some employers even provide matching contributions. The money in the account generally won’t be taxed until it’s withdrawn.

When investing, consider the risks and the annual expenses.

  • Invest in an IRA or a 401(k) as soon as you have some income.
  • Putting all your eggs in one basket can be a risky way to invest; consider a diverse mix of stocks, bonds, and cash.
  • Compare mutual fund costs: An "annual expense ratio" of 1.5 percent instead of 0.5 percent on a $1,000 investment could cost you almost $2,000 over the course of 35 years.
    • Ask about index funds, which tend to have low annual fees.
  • Think about your goals. Attending college? Buying a home in 10 years? Purchasing a car in five? Define two financial goals for the long-term future, and make a plan to achieve them.

It's important to save for emergencies.

  • Financial emergencies will happen, it’s only a matter of when. Be prepared by starting a savings account to handle repairs, replacements, sudden trips, job loss, etc.
  • Some experts suggest saving three to six months’ worth of expenses. If this seems too difficult, start by looking back at some recent financial emergencies. Set a savings goal you think will meet your urgent needs. When you reach that goal, aim higher.
  • Keep your money in a safe place, like a federally insured bank or credit union.

This content was taken from Money as You Grow, an initiative of the President’s Advisory Council on Financial Capability (2010-2013). For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

My kids think I can put everything on my credit card. How do I explain that we have to limit what we buy with credit?

First, be sure they understand that credit is a loan – you have to pay the money back at a later time. If you don’t pay the entire balance in full every month, you’ll be charged interest. And the longer it takes you to pay the money back, the more it costs to borrow.

You can illustrate this by using the Federal Reserve’s Credit Card Repayment Calculator. You can show them how long it would take to pay off $1,000 or $2,000 using different payment amounts and interest rates.

Once they understand that credit (or more specifically debt) has a cost, discuss why you would use cash or a debit card for some types of purchases, and why you would save to pay for an expensive item rather than pay it off over months or years.

It may also help to let them know the difference between credit cards and debit cards, which these days look the same, but are very different.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

My son just started his first part-time job. Can he open an IRA?

Yes. As long as he has taxable compensation, he can open an IRA and can contribute the lesser of $5,500 or the amount he earned for the year.

There are two types of IRAs – the Roth IRA and the traditional tax deductible IRA. The basic difference is that contributions to Roth IRAs are not tax deductible, but you can withdraw your savings in retirement tax-free. With traditional IRAs, you can deduct your contributions in the years you make them, but when you make withdrawals in retirement, the money will be taxed at your regular income tax rate.

The better option for young people earning part-time incomes is likely going to be the Roth. That’s because:

  • Young workers are probably in the lowest tax bracket and would likely pay a higher tax rate later in life.
  • The future taxes they would pay on their earnings – after 40 or 50 years’ of growth – is going to be more significant than any tax break they’d get today.

Opening an IRA is also a great opportunity to talk to your son about the time value of saving. That is, the sooner you start saving, the easier it is to reach your goals.

Use the Compound Interest Calculator on the SEC’s website, Investor.gov, to run different saving and retirement goal scenarios to illustrate this point. Start with a fixed goal, like $1 million. Then show him how much he’d have to save each month if he starts at 22. Next see how much he’d have to save each month if he started at 42.

You can learn more about IRAs, their rules and limits in IRS Publication 590, Individual Retirement Arrangements.

For more money activities for your child, download or order the Money As You Grow poster, produced by the President’s Advisory Council on Financial Capability.

My teens are starting part-time jobs and asking questions about credit. What should I be telling them about money?

Here are some topics you could consider discussing, and activities to help the conversations.

It’s less expensive to save for big purchases than finance them with high-interest credit.

  • Discuss how having a savings and spending plan can help them reach their goals.
  • Using the Credit Card Repayment Calculator at federalreserve.gov, show your teens how long it could take to repay a $1,000 credit card debt by making the minimum monthly payments.
  • Talk about how repaying a credit card in full every month can help them avoid interest payments.

How you use credit today will affect your ability to get credit in the future.

  • Paying bills late can hurt your credit score. Having a poor credit score could cause you to pay more for credit in the future as well as possibly affect your insurance costs, deposits for utilities and your ability to get a job. .
  • You should check your credit reports at least once every 12 months at annualcreditreport.com to make sure it doesn’t contain any mistakes . Your credit score is based on information in your credit reports. Getting your credit reports regularly will also help you avoid identity theft.
  • If you think you might carry a balance, shop for credit cards with low interest rates and no annual fees.
  • When a parent cosigns for a credit card, any late payments will also affect their credit history.

Your first paycheck may seem smaller than expected since money is taken out for taxes.

  • Discuss the difference between gross pay (before taxes are taken out) and net pay (the amount you take home).
  • Explain that the W-4 form, which you fill out when starting a job, determines the amount of taxes taken out of a paycheck.
  • Explain that tax brackets vary depending on how much you earn.
  • Discuss what taxes pay for, including schools, road maintenance, and medical help for the elderly.
  • Once your children have steady jobs, help them set up automatic savings programs so at least 10 percent of earnings goes directly into their savings accounts.

This content was taken from Money as You Grow, an initiative of the President’s Advisory Council on Financial Capability (2010-2013). For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

 

What should children entering their teenage years - say, 11 to 13 years old- start learning about money?

This is a good age to introduce the time value of money – the sooner you start saving the easier it is – online safety and credit basics. Here are some milestones and activities you could try with your teens:

You should save at least a dime for every dollar you receive.

  • Encourage your children to always save 10 percent of the money they get.
  • Have your children set a goal to buy something they want, and have them work toward that amount.
  • To reinforce the savings habit, go to the bank two to three times a year with your children to deposit savings into their accounts, and look at how much bigger the balances are on each visit.
  • Consider a "matching plan" for your children's savings: You put in 25 cents for every dollar they save.

Entering personal information, like a bank or credit card number, online is risky because someone could steal it.

  • Discuss the dangers of entering personal information online.
  • Explain that thieves can use Social Security numbers or other personal information to open credit cards or create fake documents.
  • Explain that "free" offers online, such as cell phone ringtones or games, can be scams to get people to spend money without realizing it.
  • Make it a rule that your children never answer emails from someone they don't know and never click on pop-up ads.
  • Go to ftc.gov/idtheft for tips on information security.

The sooner you save, the faster your money can grow from compound interest.

  • Compound interest is when you earn interest on both the money you save and the interest you earn.
  • Show your children the following: If they set aside $100 every year starting at age 14, they'd have about $23,000 at age 65. However, if they begin saving at age 35 they'd have about $7,000 at age 65. Assume the account earns 5% every year.
  • To compute compound interest, use the calculators at investor.gov.
  • Discuss how much your child can save. What will he have to give up? Is it worth it?

Using a credit card is like taking out a loan; if you don't pay your bill in full every month, you'll be charged interest and owe more than you originally spent.

  • Discuss why you should not use a credit card to buy something that you can't afford to pay for with cash.
  • Look at credit card offers online with your child, and compare the interest rates.
  • Using the Credit Card Repayment Calculator at federalreserve.gov, see how long it could take to repay a $1,000 credit card debt by making the minimum monthly payments.
  • Discuss how a credit card can be useful for making purchases online, or as a convenience.

This content was taken from Money as You Grow, an initiative of the President’s Advisory Council on Financial Capability (2010-2013).For more money activities for your child, download the Money As You Grow activities flier which describes money milestones for kids at various ages.

What should children know about money by the time they are five years old, and what can I do to help them learn?

During preschool and kindergarten, money lessons should be fairly basic. Here are some milestones and activities to consider:

You need money to buy things.

  • Have your children identify coins and their value.
  • Discuss how you may value something that is free, such as playing with friends.
  • Identify items that cost money, such as ice cream, gas for the car, or clothes.

You earn money by working.

  • Describe your job to your children, or take a walk around your neighborhood or town and point out people working, like the bus driver or police officer.
  • Explain that some people start their own businesses, like stores or restaurants, and those people are called entrepreneurs.
  • Encourage your children to think about how they could earn money by setting up lemonade or cookie stands.

You may have to wait before you can buy something you want.

  • When your children are standing in line for a turn on the swings, or looking forward to their favorite holidays, point out that sometimes we have to wait for things we want.
  • Find three jars (or cans) and label one for saving, one for spending, and one for sharing.
  • Suggest that your children put some of the money they get into the saving jar, so they can buy a toy or treat when they have saved enough.

There's a difference between things you want and things you need.

  • When you are out shopping, point out essentials such as food and clothing, and ask your child to describe items that she may want but are optional.
  • Talk about how your family decides what to buy and what to pass up. Which is more important, buying fresh fruit or cookies, milk or soda?
  • Draw a circle and divide it into sections for food, rent or house payments, clothes, and "optional items," to show that there is a finite amount of money to spend.

This content was taken from Money as You Grow, an initiative of the President’s Advisory Council on Financial Capability (2010-2013). For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

What should I tell my kids about entering personal information like bank or credit card numbers online?

First, tell them to never take pictures of debit or credit cards and post them on social media sites (yes, people actually do this).

Explain the dangers of entering any kind of personal information online, and that thieves can use things like account numbers, Social Security numbers and other personal information to steal their money or steal their identity, which can make it harder to start a credit history.

You might also want to tell your child that “free” offers online, such as cell phone ringtones or games, could be scams to trick them into spending money without realizing it.

Consider making a rule that your children never answer emails that ask for account information ¬– even if they are organizations or people they know. They should also avoid online forms or popups that require account information.

The FTC has more tips on protecting your children’s or your own personal information.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

What's a good way to get my child in the habit of saving?

The younger you can start the better – preferably as soon as your son or daughter starts asking, “Can I have that?” If your children are already in middle or high school the answers can vary. Let’s look at each age group in turn.

For preschoolers

There are big lessons wrapped up in saving, including understanding the difference between needs versus wants, understanding that needs come first, and sometimes we have to wait for those things we want. Explain that you and your family need food, clothing, a place to live and transportation to get to work. Most everything else is a want. When you go shopping, point out the things that are needs and those that are wants.

You can teach delayed gratification – that you sometimes have to wait for those things you want – by using teachable moments, like when your child is standing in line for a turn on the swings, or looking forward to a birthday or holiday.

A common method to get children in the habit of saving is to use three jars or cans, one labeled “saving,” one for “spending,” and one for “giving.” Each time the child gets money, a little should go into each.

When your child sees a toy they want, don’t automatically say “no.” Have the child look at the price. Then, let them use the money in their spending jar, or save for it using their saving jar.

For middle schoolers

Encourage middle schoolers to save a dime for every dollar they receive. Help them start a savings account at the local bank, or credit union, or online. Then help them to set a savings goal. It could be the amount needed for a new gaming system, a bike, or car when they turn 16. Whatever they choose, it should be meaningful to them.

To reinforce their savings habit, go to the bank at least two to three times a year with your children to deposit their savings into their accounts, and look at how much bigger the balance is on each visit.

You might also consider a “matching plan” to help incentivize your child’s savings. For example, you could put in 25 cents for every dollar your child saves.

For high schoolers

Once teens reach their freshman and sophomore years, they may be starting to work part-time jobs, which mean more money to save – or more temptation to spend. Help them to focus on attaining their goals, rather than on restricting their spending. For example, many teens’ biggest goal might be saving for a car. Show them the math – how soon they could reach their goal if they saved a specific amount each paycheck or month.

You can also explain that the more they save for big ticket purchases like a car the more they can reduce the amount they have to finance and the amount of future income that would have to go to loans and payments. Look at online calculators to run different down payment and monthly payment scenarios.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

When we go shopping, how can I explain that we can't afford to buy all the things my children want?

If you’re uncomfortable talking about affordability, consider using your shopping trips to discuss needs versus wants and how you make money choices.

First, there’s no shame in explaining to children that you have a certain amount of money to spend on the things you need and the extras you want. Some younger children may not grasp that your funds are finite.

You can help your kids to learn that money is all about choices: How much you spend, or don’t spend. Which brands you buy. What prices you’re willing to pay. Whether you shop for the best value or go with the first item you see.

A good way to teach these money choices is to include your children in some of your buying decisions. For example:

  • When you’re at the grocery store, explain why you pick one size or item over another. Then ask your children which choices they would make.
  • Try giving your children a few dollars and ask them to pick out what kind of fruit they would want in their lunches.
  • When shopping with your child, ask yourself aloud: “Do I need this now? Could I find it for less if I shopped around more?

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.

When's a good age to open a savings account for my child?

You can help children open savings accounts as soon as they save more in their piggy banks than you feel comfortable letting them have easy access to – either because you think it might be too tempting to spend, or you fear it could get lost.

A good way to introduce your child to banks or credit unions is to explain that we use these institutions to keep our money safe and to receive interest. Even younger children will understand the safety and security part, but you might want to save a detailed explanation of compounding interest, or how our banking system works, until they’re able to get it.

If your child asks why banks pay us for keeping our money safe, you can explain simply that banks and credit unions use our savings to make loans to other people. They charge those customers a little extra when they pay the money back, and we get a portion of that.

You can also explain that the deposits we put into a bank or credit union are insured through the federal government.

TIP: Shop around for accounts that require low initial deposits and no minimum monthly balance. You wouldn’t want your children’s allowances to be eaten up by monthly fees.

The next time you go to your bank or credit union, have your children come along. Show them the vault and introduce the tellers. Ask about interest rates on savings accounts and open an account.

If your bank offers online access, let your child see their balance from time to time and discuss how they could make it grow.

For more money activities for your child, download the Money As You Grow activities flier, which describes money milestones for kids at various ages.




Copyright © 2013 by Mark McCracken , All Rights Reserved