We teach our kids everything from tying their shoelaces to clearing their plates from the dinner table, but have you taught your kids anything about financial responsibility?
You may think that there’s plenty of time for that topic when they’re older — but truth is, it’s never too early to start having these conversations.
Whether your family is super responsible with financial issues — or struggling to take control of the money monster — financial topics can be a minefield. When it comes to our children, many of us feel that they do not need to know anything about the family financial situation. But they do need to learn about financial responsibility for their own future and what better time to start teaching them than during tax season?
Forming opinions about money begins early
You might think that your elementary school kids are too young for the topic of financial responsibility, but they are ready. By the time kids hit kindergarten, they have already started to develop attitudes and values surrounding money and finances. They watch (and listen) as you prepare your income tax return each year. They have been to every store from the neighborhood grocery to the furniture store with you and have been watching you complete transactions for years. Each trip to the drive-through ATM for cash and every tooth fairy stash they find under their pillows is cementing the fact that money is a necessary part of life. It is your job as a parent to teach them how to be responsible with money, too — and ensure a financially stable future for themselves as a result.
Allowance or no?
Parents differ on whether or not they give allowances to their children. Some choose to start an allowance system once their kids are old enough to do chores around the house and they tie receiving the allowance to the proper completion of chores. Other parents prefer to fund — within reason — the activities and items their child chooses, like an afternoon movie with friends or new earbuds for their iPod. Other parents institute an allowance, but don’t tie it to specific jobs or chores. Whatever your choice on the issue of allowances, you can instill financial responsibility lessons for your kids.
We checked in with Tami Farrow, senior vice president and head of retail deposit payments at TD Bank, and asked for her advice on the allowance question and whether parents paying for chores is a good way to establish the concept of work and earning money. “Giving an allowance — and the amount of that allowance — is a parental decision that varies from household to household, but children understand from a very early age that you need money to buy things,” she says. “Even a very nominal allowance is an opportunity to begin teaching children about the value of money and the power of saving over time.” Tell your children that when you receive compensation for your work, a portion of that is set aside for income taxes each month. You could even do a “mock” income tax on their allowance money, showing them to figure a portion for savings, spending and taxes.
Learning to budget
Once kids start to have money of their own, parents can help them establish a reasonable monthly budget. Some parents opt for the trial-and-error model, letting their kids make their own decisions about saving or spending their own money when they are young, so that they can learn from their mistakes. No matter how you approach the concept of budgeting, reloadable cards are a great way for older kids to gain some independence while they are learning.
“A reloadable card product like TD Go is a great tool for helping your children to learn about budgeting and smart spending,” shares Farrow. “Teens enjoy the independence of having their own card and accessing their own funds and parents have the comfort of knowing that their kids can’t spend more than is available on the card.” Using a reloadable card also leaves a money trail to follow, so it’s obvious where the money has gone at the end of each month. This provides a great way for parents and tweens or teens to sit down and review expenses. “This is a great opportunity to have a conversation about budgeting, saving and other sound financial habits,” Farrow adds.
What about credit cards?
Obviously teaching our kids about money and credit is important, but at what age are they really ready to understand the concept of credit cards? We asked Farrow her opinion on talking to children about money and finances and how to handle them responsibly. “Every child is different, but the start of an allowance can be a good time to introduce the concept of credit,” she says. “For example, letting a child borrow against future allowance, but ensuring that they pay you back through ‘garnishing’ their future allowance payments. Also, it’s great to focus on saving when children receive money as gifts,” Farrow adds. “Part of the money can certainly go for a treat, but a portion of the money should be set aside for future expenses.”
Last but not least: Set an example
You guessed it — the best financial example your kids have is you. Are your spending habits haphazard or frugal? Do you follow a tight monthly budget or just spend it and forget it? “Be open and talk to your children about the importance of saving and cautious use of credit,” says Farrow. “You can even include them in family decisions — for example, “We have $100 to spend for fun this month. We can go out to dinner or go bowling, but we can’t do both.” By engaging kids in financial decisions they’ll be exposed to important lessons on budgeting and financial decision making,” she adds.