Teaching Your Kids About Money

Everyday Teachable Moments for Kids and Teens

In many families money is a taboo topic. But you can help your children and grandchildren learn financial lessons that will last a lifetime by looking for teachable moments in your daily life that naturally bring up the topic of money. Here are some examples of teachable moments to help you get started:

When depositing your paycheck, talk to your kids about:
Budgeting some of your paycheck to pay for things like rent, food and clothing.
Saving a portion of your paycheck to build a nest egg for future expenses like college tuition and retirement.

When grocery shopping, talk to your kids about:
The difference between a need and a want – milk is a need, candy is a want.
Using coupons, buying in bulk, and other ways that you save money on groceries, etc.

When using your credit card, talk to your kids about:
Paying for these purchases each month when the credit card statement comes in the mail.
How using a credit card is like taking out a small loan for each purchase.

When giving children an allowance, talk to your kids about:
Setting up a budget. For example, decide how much to save, spend or share with others in need.
Setting a financial goal, such as buying a new bike, and figuring out how to achieve it.

When you pay bills each month, talk to your kids about:
How a check is taking money out of your account at the bank to pay the bill.

Keeping track of the checks you’ve written in the check register so that you don’t spend more than you have in your account.

When using an ATM machine, talk to your kids about:
How the money is coming from your account at the bank.
Recording withdrawals in your check register so that you don’t overdraw your account.

Early Money Management Habits for Kids

There are many events in children’s lives when good money management skills can be fostered. By constant repetition, these skills will develop into life-long habits. Consider a few opportunities to reinforce messages:

Piggy Banks – The First Lesson in Saving
The arrival of a child’s first piggy bank teaches at an early age that pennies, dimes, and nickels can add up to dollars pretty quickly.

Weekly Allowance – Spend Some & Save Some
Help children see the value of spending a little now and putting some aside to spend later. Giving some to a worthy cause can also be suggested. If you provide your children with an allowance, you can start them off right by requiring them to budget and save a portion of it.

That First Job – Time to Open a Bank Account and an IRA!
Ask a young person what he or she will do with the income from their first job, such as babysitting or doing yard work for the neighbors. Encourage them to think about their spending and savings options. Many teenagers today make enough money to open their own checking account or a joint one with their parents. It’s even possible to open a retirement account.

The Big Things They Want – What it Takes to Buy Them
So they want the latest game console or MP3 player. Or maybe it’s a special school trip or even a car someday. Saving for these takes time. Now’s the time to talk about being disciplined to save for what we want and being realistic about our needs and wants.

Protect Your Financial Information – Don’t Give Away Account Information
Tell children that bank account numbers are secret numbers and should never be given away. Never “mail” letters by putting them into your own mailbox for the postman to pick up. Sometimes thieves look for secret bank numbers in outgoing mail. Tear up or shred any papers with your secret bank numbers, rather than throwing them in the trash. Tell kids that believe it or not, thieves will even go through your garbage to steal your financial secrets.

Teaching Teens the ABCs of Using Credit Wisely

Teens notice each time you pull out the plastic – but do they understand how it works? Probably not. You might be using a debit or credit card – very different ways to pay for things, but to kids, they look the same. Any time you make a purchase, regardless of whether you use cash, credit or debit, there’s an opportunity to teach kids about savings, budgeting and credit.

Learning about credit cards and debit cards is particularly important for teens, with debit cards becoming a very good option over credit cards. In fact, 50 percent of teens aged 18 and 19 had a debit card in 2005, according to Teenage Research Unlimited, up from 37 percent in 2001. Moreover, credit cards held by this same group declined to 25 percent in 2005 from 45 percent in 2001. Teens and their parents are realizing that a debit card can be a very valuable budgeting tool since cardholders can only spend what is already in their account (unless there are special overdraft features of the card). As kids mature, a credit card will be an important option in order to establish a credit history that may be necessary to rent or purchase a home. The credit history may even be checked by a potential employer. Thus, helping your teens develop good credit management habits will help them avoid serious consequences that can last for years.

An opportune time to talk about spending and using debit and credit cards is before shopping for school clothes. Talk about:
How you will pay for the purchases – debit or credit.
Budgeting – these are anticipated expenses that can be planned for in advance.
Having a limit on what you’ll spend.
What you or your family might need to cut back on or do without to cover these expenses. Children only see what you buy and not what is given up.

If you use a credit card, help your children understand that you are taking out a small loan. Paying your debts on time and keeping your credit history strong is another important message. And tell them what the real cost will be for your purchase once the interest charges are added on.

Here are a few quick questions your teen could ask himself or herself when shopping:
Do I really need this item now?
Do I have enough money in my debit account or in my budget this month to pay off the entire purchase?
If I use a credit card, what additional fees or interest will I pay to carry a balance?
What will I have to give up in order to buy this?

Copyright 2006 American Bankers Association, 1120 Connecticut Ave NW, Washington, DC 20036. All rights reserved.