Last week, I started looking at twelve age-appropriate ways to teach kids about money from Mint.com – this week, I’ll finish off the list.
The key idea to remember here is that it’s important to have conversations with your kids, and involve them in activities that will help them learn — but there’s a definite order to things, and taking these lessons in the right order will really help cement the lessons in their minds.
- Direct your kids to allocate money for spending, sharing, and saving. This is a habit that is best established at an early age. If your kids know from day one that 10% of their allowance is going into savings, it will be much easier for them to continue saving later in life.
- Set up a bank account for your teen. Most banks will allow you to set up a custodial checking account for kids, regardless of the age. When they’re ready, you can show them how to write checks (you’ll have to sign them) and record them in the register. This will be the account they’ll accumulate cash into while they save up for large purchases, or save up activities money in the off-season to pay for football or soccer registration and equipment fees.
- Show kids how to safely make purchases online. For most kids, this starts out with iTunes purchases, or online gaming registration. Show kids how to recognize the secure site (https://) signature, and talk to them about the information they should and should not disclose online.
- Introduce plastic (debit and credit cards) to teens. We are HUGE fans of the Visa BUXX reloadable debit cards for managing our teens’ allowances and spending. They’re learning how to manage plastic, without using credit, and it makes allowance day much easier. We also add our kids as authorized users on our American Express card when they turn 15 (but we don’t give them the card!) to help build an immediate credit rating.
- Give older teens more responsibility. By the time a teen is 14 or 15, they should be able to manage all of their own spending – clothing, activities, savings, food, fun, and charity. They’ll know how much they’ll receive on a monthly basis, and will be able to find additional sources of income if their wants or needs exceed that budget.
- Teach older teens how to invest. Only when a teen has the perspective of many years of saving and sacrificing for large purchases are they ready for the idea of investing for many years – decades – into the future. Talk to them about setting up investment accounts — and remember, any “real job” that reports earnings on a W-4 form allows them to contribute to an IRA and deduct those earnings from your taxable income, if you’re reporting them as dependents.