Money Management Lessons for Every Age
By Lynn Ferraina, Advisor
Everyone has a different memory of the day they received their very first paycheck along with the excitement that came from having that first taste of financial freedom. It’s a feeling most of us hope to feel throughout our life, but if you were not exposed to lessons on financial responsibility when you were young, it may be a more tumultuous road to get that feeling again. That is why it could be helpful to teach your children and grandchildren as early as possible how to intelligently manage their money. While it’s a skill nearly everyone at any age can learn, studies have shown that children who don’t receive financial education are more likely to have lower credit scores and face financial difficulties later in life. The concern of many parents and grandparents is often “at what age and how do I begin teaching these concepts?” The following, broken down by age group, are skills which can be taught at each age, and creative ways to incorporate these lessons into your children and grandchildren’s lives.
Toddlers
(Ages 2-4)
Toddlers are just starting to develop their verbal and non-verbal abilities, so understanding the finer points of fiscal responsibility may be a bit of a stretch. This can be a good age to begin introducing the concept of money, how it can be exchanged to purchase items, and how it has to be earned. Pew Research found that most adult’s attitudes toward money were actually formed by the time they were seven. Toddlers tend to be sensory learners, so incorporating physical touch and feel into the learning process could enhance their comprehension.
As you begin to teach counting, you could use coins to demonstrate. You could then integrate this practice into playtime by setting up a pretend “storefront” and have children exchange toys or empty food containers for money. To help them understand the concept of earning, you might have them help with a small task such as putting away a toy in order to “earn” another toy or game. At this age, the goal is to ideally instill a positive association with money, so as they age they feel a greater comfort discussing more advanced financial concepts.
Children
(Ages 5-12)
At this age, kids can begin to understand the true value of goods and services, the time and effort it takes to earn money, and how saving money can allow them to save up for larger purchases. When grocery shopping, you could have them help you count out the correct change, and have them hand over the money. As you shop you can point out the prices of different items, and compare them. Showing an example of how candy they may want could equal the cost of two boxes of cereal, or that milk costs a dollar seventy-six cents more than a carton of eggs. Having a general understanding of the cost of goods can then build toward creating a budget.
When a child is throwing a tantrum in front of a display of shiny new action figures, it can be enticing to just give in to their whims and buy them the toy. This may not have the desired benefit of teaching one of life’s important lessons: “If you’re not willing to put in the work, you won’t be able to reap the reward”. Toys cost money which requires working to earn that money. You could have extra chores they can perform with different values placed on the tasks. In the professional world, jobs which require a greater level of experience, education, or specialization typically earn more. The same principles may apply with chores. Once the child has their goal (the toy) you can help them budget how many chores will be required to earn it.
If the toys they want are more expensive, it may take more than a days’ worth of chores to pay for it. This is where you can introduce savings. We can’t always buy everything we want the moment we want it. An often important step in comprehensive financial planning is determining long term and short term financial goals and then tailoring your spending and savings habits to them. Children could learn this lesson by having separate jars for immediate spending and savings. Seeing a jar filled with money that they worked and saved for provides a sense of accomplishment and may lead to more conscientious financial habits in the future.
Teenagers
(Ages 13-18)
It is your last few years to really instill positive habits before they reach adulthood. When you’re a child, you don’t face the same financial consequences that you do as an adult. If you’re not careful in your financial decision making, you may find yourself facing some long-term difficulties. A part-time job could help introduce this lesson. In the workplace, your actions and behaviors can have real repercussions. How you manage the time, effort, and tasks your given can result in either gaining a paycheck or losing the job.
If your teenager has a paycheck from their part-time job, you could open a savings account so they can get a head start on savings for their future. It will also introduce them to the concept of having their money make more money through interest. Most savings accounts earn low-risk, low-return interest, which could be a great place to start potentially growing their wealth. If they start depositing into the account early enough, they might even have a decent nest egg once they graduate high school.
This may also be a good time to introduce them to investing. Your teen may not have enough in their account to invest in a real company’s stock or a fund, but they could virtually “invest” in an online stock market game. Various online market simulation games exist, many of which are free. Even if the money their investing is not real, it can still teach them how they may want to manage and invest their money in the future.
While there may not be a perfect uniformed method to teach financial literacy that works the same for every child, generally speaking, beginning lessons as early as possible tends to lead to better results. The lessons that come from learning how to be financially responsible can also teach kids how to make positive choices in other areas of their life as well. At some point, almost everyone wishes that they had learned more about a subject or life skill when they were younger. However, it could potentially benefit your children in their future endeavors if money management is not something they wish they had learned more about. As you and your children explore the financial landscape together, you may want to discuss with your advisor your financial goals and desires for their future. Together you could work to foster your legacy.
Sources
Benefits of Financial Education:
Financial Attitudes:
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