Teach children financial basics

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April is Financial Literacy Month. Now is a great time to start teaching your children the financial basics. As soon as your children begin to handle money, it’s important to teach them how to handle it wisely.

Making allowances

Giving children allowances is a good way to begin teaching them how to save money and budget for the things they want.

When it comes to giving children allowances:

  • Set parameters. Discuss with your children what they may use the money for and how much should be saved.
  • Make allowance day a routine, like payday. Give the same amount on the same day each week.
  • Consider “raises” for children who manage money well.

Take it to the bank

Piggy banks are a great way to start teaching children to save money, but opening a savings account in a “real” bank introduces them to the concepts of earning interest and the power of compounding.

While children might want to spend all their allowance immediately, encourage them to divide it up: spend some, save some.

Shopping sense

Children need guidance when it comes to making good buying decisions. Teach children how to compare items by price and quality.

Earning and handling income

Older children may earn income from part-time jobs. Earned income might be subject to income tax withholdings. Show your children how this takes a bite out of their paychecks and reduces the amount they have left over for their own use.

Creating a balanced budget

Greater financial independence should come with greater fiscal responsibility. To help children learn about budgeting:

  • Devise a system for keeping track of what’s spent
  • Categorize expenses as needs (unavoidable) and wants (can be cut)
  • Suggest ways to increase income and/or reduce expenses

The future is now
Teenagers should be ready to focus on saving for larger items (a new computer or a car) and longer-term goals (college or an apartment). While savings accounts may still be the primary savings vehicle for them, consider introducing your teenagers to the principles of investing.

Should you give your child credit?

If older children are responsible, you may consider getting them a credit card. Credit card companies cannot issue cards to anyone under 21 unless they prove they can repay the debt themselves, or an adult cosigns. If you decide to cosign, keep in mind you’re taking on legal liability for the debt, and it will appear on your credit report:

  • Set limits on the card’s use
  • Ask the credit card company for a low credit limit or a secured card to help children learn to manage credit without getting into serious debt
  • Make sure children understand the grace period, fee structure and how interest accrues on the unpaid balance
  • Agree on how the bill will be paid, and what will happen if the bill goes unpaid
  • Make sure children understand how long it takes to pay off a credit card balance if they only make minimum payments
  • Consider using prepaid spending cards instead, to allow children to gradually get the hang of using credit responsibly
 Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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