Nurturing Smart Decisions About Money

There is little doubt that some kids and adults do not make wise and responsible decisions about money. Many, if not most of us, were never educated about basic financial concepts and money. Although according to the Council for Economic Education, in 2022, 23 states require students to take a class in personal finance to graduate from high school, it is better to start learning about money much earlier.

Because there is evidence that kids have developed persistent financial habits by the age of seven, experts emphasize that It’s never too early to begin teaching kids about money. This both helps kids wisely use money in childhood and lays the foundation for responsible money management later in life. Since kids learn from the example of their parents, children whose parents modeled and encouraged them to spend and save thoughtfully are most likely to develop wise and responsible financial behaviors. Researchers from the University of Minnesota suggest focusing “children’s education about money on the concepts of earning, spending, saving, borrowing, and sharing.”

Some parents are reluctant to try to teach their kids about money because they do not consider it to be an appropriate topic, or don’t feel confident enough about their own knowledge about money and finance. Others mistakenly believe that children are too young to understand financial concepts. In fact, because money is routinely used in daily living, parents will have many opportunities to teach their children about money through example and explanation. Starting as young as age 3, parents should take advantage of the many opportunities to talk to kids about money in age-appropriate ways.

According to Ashley LeBaron “I think it’s hard for parents, sometimes, to let their kids make mistakes…” “It’s tempting to just shield kids from everything related to money, but it’s really important for parents to get money into kids’ hands early on so they can practice working for it, managing it and learning how to spend it wisely.”

Some messages are appropriate for kids in preschool and kindergarten: Ages 3 to 5

With the help of their caregiver, children as young as 3 years old can understand that material goods may cost money. They can begin to start physically handling and spending their money for things they want. Give them a clear piggy bank or clear jar so depending on their decisions, they can see their money growing when they save or shrinking when they spend it.

Parents can begin to help a preschooler or kindergartener set simple financial goals and of course model good money behaviors. Because kids’ early interactions with money will involve spending it’s important to teach them money is for saving too.

Teaching about money for kids in elementary and middle School: Ages 6 to 14

Parents should begin to explain their financial decisions to children of these ages as they shop or consider other larger expenses such as a vacation or a new bike. This might include decisions relating to price, sales, and a budget. Children these ages can understand compound interest, the cost of interest on debt and how compound interest can work for their savings or increase their debt. And they should begin to experience each of the concepts of earning, spending, saving, borrowing, and sharing–perhaps when buying a gift for a friend or family member.

Kids at these ages should have some money to manage without parental interference but plenty of parental help for them to understand the consequences if mistakes are made.

Saving should begin to become a habit for kids at these ages. Saving teaches goal-setting, planning and independence. They should be saving for some things they buy based on an allowance, or earnings, perhaps from household chores or other activities like mowing lawns, shoveling snow or a summer job. Parents might want to consider matching or topping up savings by giving a certain percent to deposits in a savings account.

Some experts on learning about money suggest that it is better to give commissions, not allowances, based on work such as household chores. The idea is that this helps kids understand that money is earned—it’s not just given to them. However, some parents think that a family’s household chores should be considered an appropriate duty that does not deserve remuneration.

Teaching about money for kids in high school and college: Ages 16 to 21

By the time a child reaches high school, he or she should have a good level of financial literacy that includes knowledge of earning, saving, borrowing, spending and sharing. By high school, if not earlier, kids should be learning about money management by having and being responsible for their own bank account. Kids at these ages should have their own budget and get in the habit of spending according to their budget. There are many low-cost or free budgeting aps for smart phones and computers that can help with this.

Most kids at these ages are eager to have spending money. Parents can help them find a job or other ways to make money––especially during free times like summer break. Parents can also help them avoid unnecessary expenditures.

Another topic worth pursuing is understanding investment options. This is a complex subject with investment advisors and companies offering a vast array of investments including stocks, bonds, annuities, insurance, precious metals, cryptocurrency, and other products.

Since to become a good investor requires substantial time and effort it suggests that initially, caution and selection of safer investment vehicles is warranted. Investigating this topic may be an opportunity for kids and parents to work on needed research together.do the research together to find ways of securing your future.

Kids have a lifetime ahead of them so time is on their side. The adage that “Time in the market is better than timing the market” applies. Warren Buffett, one of the world’s most successful long-term investors suggest buying a low load stock index fund that follows the S&P 500 rather than individual stocks.

Another investment vehicle for kids to consider is a Roth IRA. These accounts are funded with after-tax dollars, but withdrawals in retirement are usually tax-free. This means that kids could benefit from many years of potential compound growth and tax-free income in retirement.

Final Thoughts

To nurture a lifetime or responsible financial management it is important for caregivers to regularly discuss the topic, set a good example for kids to learn from, and help kids to learn by practicing financial management skills in their daily lives.