Basic Financial Understanding
It is important from a very early age to teach your children about money. Saving money, budgeting and not going into debt.
So many teens graduate from high school with no understanding of how to manage their money. Most schools do not teach basic, common-sense finance. At the very least a teen graduation from high schools should know how to create a budget, invest in the stock market, save money, manage their bank account, use a debit and credit card and stay debt free. So, it is up to parents and guardians to provide them with this information.
Savings
Open a savings account for them when they are very young and any time they receive money put half of the money or more into that account and show them how the money grows. Consider online savings accounts, often they pay higher interest rates than traditional savings accounts.
Teach them how to save for something they want. Maybe there is a toy, video game or other item they would like to have. Teach them how to save the money in an envelope or in their savings account until they have enough saved to purchase the item. This teaches them that they must work for what they want and how delayed gratification makes them feel. When they work to save the money themselves and then finally have enough to buy the item it instills in them a sense of pride and accomplishment.
Summer or After School Job
When your teens are old enough encourage them to get a summer or after school job. Research shows that when young people have a job, they learn important lessons about money and end up being better savers. Make sure they put a portion of their earnings into savings and investing.
Purchasing
Talk about when to buy new and when to buy used. Teach them how to thrift shop for items, watch for sales and clip coupons. Take them to garage sales and have a garage sale yourself.
When shopping, show them how to compare prices on the same item and how to save money by buying an off brand or generic.
Credit
Go online to Experian, Equifax and Transunion the three major credit bureaus. Create an account for yourself if you don’t already have one and show them what a credit score is, explain to them how to build good credit and why it is important to have good credit when purchasing a home or car, applying for a credit card or just opening an account with a utility company or other business.
Teach them the importance of placing a credit freeze at all three credit bureaus. When they are old enough help them create their own account with each agency.
Teach them how to responsibly use a credit card. Explain to them what interest is and that a credit card should be used as a tool to establish and build credit and to earn rewards points. Stress to them that it should be paid in full each month to avoid paying interest and accumulating debt.
When your child is old enough consider adding them as an authorized user on your credit card if you have a good credit score. This is a way for them to build credit. When you use your card, it will be reflected on their credit report as well as your own. You do not need to give them access to the card.
Before adding them as an authorized user call your credit card company and ask them if they report authorized users to the credit bureaus. Not all credit card companies do, and you want to be sure yours does so that your child is benefiting from being an authorized user.
Also check with the three major credit bureaus, Experian, Equifax and Transunion and find out what their policy is for authorized users. They might not include the authorized user’s activity on their credit report if they are under a certain age or their policy states otherwise.
Monthly Expenses
When you are paying your monthly bills let them sit with you and explain each expense to them. Being honest with children about finances will make them smart and comfortable with money. If they are never shown they will not understand how to manage their own finances when they get older.
Taxes
Talk to them about taxes. Kids need to know that when they start to earn money, they will pay taxes. Show them how that works and what is deducted from each paycheck and where it goes. When it is time to file your tax return explain the process.
Emergency Fund
Show them how to setup an emergency fund to finance unexpected expenses instead of using a credit card or borrowing the money.
Retirement Account
Explain to them what a retirement account is, the kinds of retirement accounts that are available and why it is so important to contribute to these accounts.
Investment Accounts
Setup investment accounts for your children in addition to their savings accounts. Fidelity and Charles Schwab both offer accounts for younger children and teens.
Fidelity Youth Account
The Fidelity Youth account is for kids ages 13-17. It is designed to teach them how to spend, save and invest according to Fidelity. They will receive a debit card with the account. There are no account fees or minimums.
Tips on Saving and Investing for your Child
Schwab One Custodial Account is a brokerage account for kids. You setup and manage the account for your child and then transfer the account to them when they are of age, typically 18-21 depending on the state you live in.
Visit your local Credit Union and ask them about the kinds of services they offer for kids and teens.
The bottom line is you are the best example for how your child will handle money in the future. Finances and money management should be openly discussed in a family. Let you kids know that you are there to answer any questions they have.
The Tech Minimalist 