The answers to these questions are important ones for your child’s financial welfare. Research repeatedly reports this fact: children say they learn all they know about money from their parents.

Your role as parent

You have two roles as a parent when teaching your child about money:

• To talk to your child about managing money throughout his or her life

• To model good financial behavior

Both roles are important. But parents often find modeling especially difficult because they do not manage money very well themselves. Children will mimic a parent’s behavior, good or bad. And you cannot say to them: do as I say, not as I do.

Raising money-smart kids in today’s world can be complicated – often a daunting task given the messages of the modern marketplace. Whether you are a parent, grandparent, godparent, aunt, uncle or friend, you can help a child you know learn to make smart choices today.

And by your actions you’ll help prepare that child for decades of tomorrows.

Begin with simple messages when your child is very young. Each new stage in your child’s life will bring a new set of circumstances and pressures. As the child matures and situations concerning money arise, build on those simple messages by layering on more detailed and complex discussions.

Life will naturally give you dozens of opportunities for money conversations. You need to be prepared so you can handle them. Explore the suggestions for age specific financial lessons below. These ideas will get you thinking about things to do and topics of conversation for each age group.

Ages 2-6

Here are five quick tips for shaping attitudes, even in very young children.

• Resist the Urge to Splurge Many parents, grandparents, and families want their little ones to have the best of everything. They shower the child with “things.” For adults, it’s a way to celebrate a new child in the family. But for children, these gifts create a sense of abundance. Instead of one or two treasured stuffed animals, the child has a collection. These gifts are setting “abundance” as a norm, and with these gifts come an expectation that more is better. It’s a dangerous message that children will wrestle with all of their lives. Children who are content without mounds of material trappings will live simpler lives, less tempted by unnecessary spending and consumerism.

• Say No and Stick to it What begins as showering children with unasked-for gifts can quickly turn into child-initiated requests. The world is full of colorful toys, and children can develop a bad case of the “gimmees.” Asking for more, kids may use every tool at hand, from coy cuteness, to whining, to tantrums. Adults have to teach children early on that they cannot have everything they want. Think of the implications of this lesson on credit card use and debt.

• Wants vs. Needs Teach your child the difference between wants and needs. Kids may “want” many things, but “need” far less. Discerning between needs and wants will help children sort through the advertising messages that will bombard them. Evaluating needs and wants – on both a small and large scale – helps adults control expenses. Money that would be otherwise spent on “wants” can be put to work in long-term savings, investments, or retirement. These are values that secure a future.

• Teach smart shopping When your child is old enough to understand that money works in stores, start to show your child how to stretch a dollar. When you buy, be a smart shopper, and talk about the steps you take to save money. For example, if you buy an item on sale, put the coins that equal the full purchase price on the kitchen table and then take away a number of coins to show how many coins you saved. Next show what you could buy with the savings – or by adding just a few more coins. Gradually teach your child to follow your lead. It’s an important life lesson, and your child will thank you for it later.

Note: To benefit from this coin demonstration, your child doesn’t need to know how to add or subtract, he or she will get the concept simply by seeing that some coins have been saved and can now be used for another purpose.

• Build a Four-Bank System

When your child reaches age 5 or 6, begin teaching that money can be used in four ways: spending, saving, investing, and giving. Build a bank that shows children that money is used for more than spending. In fact, you may insist that any allowance is split among four categories. It’s a lesson that will shape your child’s attitude toward using money from allowances through paychecks.

Ages 7-13

• Earning and Saving Here are six ways to teach the next level of money lessons as children become more aware of money. These lessons are important because they help form money values before the high-pressure and more expensive teen years. Each link brings up a short paragraph or two.

• Allowances Allowances can start as early as age 4, when a child becomes aware of money. How much? The size of the allowance depends on two factors:

1. The economic climate of your neighborhood. What are other children getting?

2. What the allowance covers. In the early years, the allowance may be used for trinkets and treats. Later on, it will cover pizza, movies and soccer shoes. The financial responsibilities of your child should grow with age. Being financially responsible usually makes kids respect the items they buy and teaches decision-making. Kids will learn very soon that money is limited. You’ll find more on Allowances elsewhere in the Parenting Section.

• Money and Work Children should be assigned everyday chores: like clearing the dinner table and taking out the garbage. Such small chores help run the household, and therefore should not normally be considered paid work.

However, you should pay for larger projects, like reorganizing the garage or weeding the garden or waxing the car. Paying for larger “jobs” teaches your child about taking initiative and earning. You may find that when your child needs money, he or she will come to you looking for work, rather than a handout. Such action is the beginning of a work ethic. You are helping kids make the connection between work and earning.

• Money is Limited Bad habits are tough to break. Let life teach financial lessons. Don’t give in when your child has run out of money and wants an “advance” or a “loan” to buy a shirt or go out with friends. If you fork over the money, you encourage overspending and spoil the financial lesson your child has created for him/herself.

Unhappy consequences are great teachers, and a child’s sense of deprivation lingers, reminding kids to keep money on hand for the unexpected. Let a night at home or foregoing the shirt teach the lesson, not you.

• Put earnings to work Depending on your child’s age, encourage doing odd jobs for friends and neighbors or taking on a part-time summer job. Your youngster will enjoy using part of the earnings to buy something on his or her wish list. Promote putting part of the earnings in short-term savings as well as in a CD or other investment. It’s important to teach children to save for the future as well as live in the moment. It’s a habit that will serve them all their lives. Start early by building a four-bank system.

• Try a 401(kids) account “Matching” programs modeled after employee-benefits programs offer strong incentives for saving. Consider matching every dollar your child puts in savings. His or her balance will grow faster, adding to the thrill, and your contributions will emphasize the importance of saving.

Later, if your child is fortunate enough to work for an employer who offers a matching program, your child will understand the value of taking full advantage of this opportunity to grow savings. Huge numbers of employees these days miss out on this “free” money because they spend their salary rather than put money away for the future.

• Money’s For More Than Spending Too many kids regard an allowance as a sum of money that they can just spend on fun things: pizza, movies, video games, entertainments of all kinds. When they have spent their allowance, they wait for the next pay day. In adult parlance, kids are treating allowances as 100% discretionary income. They won’t be able to use their paychecks like that. Children must learn that they can do more with money than spend it.

The idea of an allowance is to learn how to use money. Build a four-bank system. This bank will teach your child that money has four uses -saving, spending, investing, and donating – the basics of asset allocation. Children should learn this lesson at an early age and build on it as they grow. It forms a solid platform for managing money.

Age 14-18

Welcome to the tough years. Here are 10 ways to help your high schooler cope with the financial demands of being a teenager. These are the last four years before your child begins to live an “independent” life that does not include parental guidance in money matters. Each link brings you to a short paragraph.

• Curb the Desire to Spend Impressionable and vulnerable, targeted by advertisers and under peer pressure, teens have a tough time. Companies touting snack foods, clothing, movies, video games, and computers will be positioning their product as a “must-have.” Counter these messages by continuing the lessons you started early and have been reinforcing since your child was very young.

• Credit and Consuming Using credit cards is a lesson best learned at home, where you can guide your teen and help the young person through mistakes. To begin, explain the pros and cons of credit. Most teens don’t know that it’s borrowing. Credit is convenient and can be a wise way to finance purchases. But warn your teen about the costly dangers of debt. Together, read a credit-card statement, and show your teen how many small purchases can add up over a month. Point out interest rates (and their totals) as well as penalties for late payments.

You can introduce your teen to using credit with a low-limit joint credit card: you cosign for a card in your teen’s name. You cap the amount to match the portion of allowance that you and your teen have agreed to. Your teen is totally responsible for the bills – which must be paid IN FULL each month. This is the crux of the exercise. Review monthly statements with your child. Do NOT help your child out of debt. If your teen overspends one month, he loses spending privileges until the debt is paid in full.

You can also tie a credit card to a teen’s saving account, which means the limit on the card equals the amount in the savings account. The risk and consequences of overspending is serious in this arrangement. Kids can not only wipe out their savings early, once savings are gone, the teen no longer has a card to practice with.

• Debit Cards Investigate the world of “stored-value” debit cards. These cards are pre-paid or pre-loaded with a fixed amount. When the card is “empty” the spending is over. A teen can load the card with a portion of allowance based on an agreement with parents. Some cards offer parental controls to block certain kinds of merchants.

Both parents and kids can monitor expenditures online, so parents know how the card is being used. These cards charge fees, but they are a way to introduce your child to the swipe-and-spend world of purchases. It’s a lesson better learned at home in small amounts than on the college campus or the work world, where the consequences can be more serious.

• Checkbooks What do teens need with a checkbook? To learn to deal responsibly with money and to learn that it is not a limitless resource. Who taught you to write checks and balance a check register – or did you figure it out all on your own?

Help teens get used to writing checks and keeping track of the money in their checking accounts while at home. If you go over bank statements with teens, they can benefit from your experience and guidance. If teens bounce a few checks at home, they may learn their lesson before they leave the nest and get into real trouble.

• Look Into College Scholarship/Grants Help your teen identify some of the opportunities for funding college. From academic to athletic scholarships to grants and loans, hundreds of programs are available, but high schoolers have to apply and qualify. Freshman year is the time to start planning to qualify.

• Rewards of Being Financially Fit Yes, remaining financially disciplined is difficult for a teen. But don’t forget to show your child that money in savings can buy enjoyment – talk about how parents’ savings can buy a special prom dress or a yearly family vacation. Explain that these treats are the rewards of leading a financially fit life.

• Teens and Financial Troubles

If your teen is broke and suffering because of it, the discomfort will eventually teach him or her to spend more wisely. Don’t let your teen dip into savings or investments to cover the shortfall. Don’t “cave in” and advance or lend money: bailing out your child destroys the lesson that the child has created for him/herself.

• Keep Work in PerspectiveTeens who have too many desires as consumers will sacrifice time spent learning for time spent working instead. Educators recommend that high school students work on weekends and during summers. During the school year, teens need time to be students, not employees. Often students avoid less demanding college prep courses, instead, they take “easier” courses to lessen the demand that school puts on their work time. It’s a big mistake that costs them in college.

• Save for College This is a time when teens should focus on saving. College expenses are right around the corner. Your child should contribute a part of his earnings, even if it’s only to accumulate spending money while at college.

Age 18-22

• The Dangers of Credit Cards College freshmen are literally swamped with credit card offers and enticed by sign-up premiums in the first week on campus. Students can easily acquire multiple new cards. Maxing-out one card and simply moving on to the next is easy. The sad truth is that credit-card debt is forcing many students to leave school. That’s why earlier lessons about managing spending, knowing how much is enough, distinguishing between needs and wants, and understanding how to use credit are so important.

• Preserve Savings Caution your student about dipping into savings to compensate for overspending. Savings must be respected. The more it is left alone, the more it grows. Regularly using savings to bail out of financial jams will wipe out a savings account in a hurry. Perhaps you want to release a monthly sum, transferring it into your child’s account. That may keep spending in line or it may drive your child to use a credit card when funds are depleted. Now is the time your child will fall back on all those lessons you’ve been working on for the last 18 years!

• Accumulation Lessons Many students work part-time campus jobs. Remind your student to use any campus earnings to continue to invest and save, even if it’s minimal. Every little bit adds up over the long haul. Conversely, spending accumulates: Buying too many pizzas, high-end coffees, and hamburgers adds up as well. Spending on many small things can eat up a monthly budget fast.

• Working and learning Talk to your child about taking work seriously and valuing its importance. However, explain that school and work require scheduling and discipline. Students who work many hours to pay for too much consumption are shortchanging their education: the very thing that will secure them for the rest of their lives

• About good and bad debt Help your child understand the difference. Bad debt is charging $3,000 worth of clothing, eating “out” too often, or buying the coolest car to bolster one’s prestige. Such debt takes forever to pay off, and that set of wheels will begin to depreciate the minute it’s driven off the lot.

Good debt, on the other hand, uses money to further goals: like investing in student loans, medical school, or a good blue suit to wear to interviews. At this point in your student’s life, good debt is the only kind to have.

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