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Kids and Money


Can Parents Effectively Teach Money Management?


Teaching kids about money management is crucial for helping them grow up successfully—but talking about money can also be difficult for parents. How do you teach your children and teenagers to earn, save, give, and spend well when they’re bombarded with conflicting messages on how to responsibly use their money? And in a country in which earning and spending habits are intensely personal, how do you bring up the topic of kids' money management in the first place?
Common Questions About Kids and Money >

Did You Know?

  • The average financial literacy score for high school students is an F. This score has fallen to its lowest level ever.1
  • While 75 percent of adults say it’s important for adults to give financial guidance to children and teenagers, only 36 percent of adults actually do so.2
  • Teenagers’ financial literacy increases significantly when they go to college; however, only 25 percent of Americans graduate from college, leaving 75 percent ill-equipped to make financial decisions.3
  • The more Developmental Assets that kids have, the more likely they’ll make smart money management choices. While 72 percent of young people who have 31 to 40 Developmental Assets save money, only 27 percent of young people with 10 Developmental Assets or less save money.4

Frequent Questions and Concerns about Money

How can I prepare my child to make good decisions when it comes to credit cards?

Begin teaching your kids about money management when they’re young. While you don’t want your child to get in the habit of spending money he or she doesn’t have, it can be very beneficial to occasionally make small loans to your child. Once your child has “taken out a loan,” talk with him or her about paying off the balance in a reasonable amount of time. Explain to your child that every purchase made on a credit card is like a loan, and continue to stress the importance of not spending money he or she does not have.

Our family has a small income and a very tight budget. How do I help my child deal with the things we don’t have?

Work With What You Have You may not realize it, but living with limited money is a valuable life skill. Children learn many useful personal financial literacy skills from parents who work hard to make ends meet. Instead of just saying “no” or hiding the fact that you cannot afford something, teach your child the smart ways you have learned to stretch your dollars. Show your child how to use thrift stores, garage sales, coupons, and clearance racks to get things for less. Point out the difference in price. Explain how you make decisions about “needs” versus “wants.” Talk about money with your kids.

I’m not very good with money myself. How can I teach my child when I have trouble on my own?

Strive to Set a Good Example. Avoid saying things that make your child worry about your family’s well-being, but talk about the ways you are trying to solve problems and improve your personal financial literacy. Start a savings account. Talk with a financial adviser if you have a large amount of debt. Be honest with your child about any past decisions you regret and the wiser decisions you are making for the future.

My child doesn’t seem to have any concept of saving or spending—how can I get through to him and teach him good habits?

Assist Your Child in Developing a Budget. Many children and young teenagers—especially before they get their first job—have difficulty with financial planning.
Keep track of all money coming in and going out, as well as where it comes from and where it goes. Talk to your child on a weekly basis about his budget and help him stick to the percentages you’ve decided upon.

Should I encourage my teen to get a part-time job? Will working distract her from school and friends?

Prioritization is Key! Getting a part-time job can be a very valuable experience for a teenager, and is a great way to teach kids about money management—but it can also add another level of stress to an already busy life. If your child decides to seek out a part-time job, support her decision, but be sure to emphasize the importance of school and friends. Helping your child prioritize school, work, friends, and family time (as well as spending, saving, and giving) will go a long way in creating personal financial literacy and a balanced life.

Volunteer work can also be beneficial for teens, as it can help them develop a sense of pride in their work, gain hands-on work experience that can be placed on a resume, and give them a chance to begin building a professional network.

What should I tell my children if they ask how much money I make?

The answer to this question varies for each family. Some parents highly value talking about money and are very open with their children regarding how much they make, while others prefer not to share this information. Whatever you decide to do, it’s important to decide on what you will do before this question comes up. Think about what you’d like your child to know, and talk with your parenting partner about what he or she feels comfortable with. Agree on a way to address the question if and when it is raised.

Teaching Kids about Money Management

Kids are very observant, and they pick up on what their parents do and say, so be sure to set a good example when you’re dealing with money. Make it a point to teach kids about money management not only by what you say, but also by what you do.

 
Make a Budget; Stick to It: If you have to cut back on some things, let your kids know that it’s because those things don’t fit in your budget plan. Talk about money-related decisions that you have to make based on your budget.

Practice Good Spending Habits: Compare prices or use coupons before you make a significant purchase. Ask your kids to help you make the best decisions, talk about money management skills with them, and help them understand your spending practices.

Teach Kids About Spending, Saving, and Sharing: Kids may think they should keep all of their money for themselves, but showing that you care about helping others sets a powerful example. Decide on a percentage you will give each month to a nonprofit organization, school, or other charitable cause.

Don’t: Use your credit card to purchase things you can’t afford. This can be an especially appealing (and dangerous) money management practice for teens.

Parenting in a Recession

Do: Loan your child money. For example, if your child wants to buy a bicycle, have her save up a certain amount for a deposit and then figure out a payment plan (and stick to that plan every step of the way) until it is completely paid off.

Save For Now and Later: Encourage your kids to save for things like a new bike or a concert ticket—and in the long term, for expenses like college tuition or a car. Having a savings goal makes the budgeting process more real and tangible.

Talking With Your Kids About Money

Practice What You Preach: Remember that your children learn from all members of your family, whether they’re talking about money or not. Make sure everyone is practicing good saving and spending habits to reinforce the messages you’re sending to your kids.

Teaching Money Management by Example

Like anything else, financial literacy is best taught by intentionally setting a good example around your children. If your kids see you and other members of your family making well-informed, well thought-out, and responsible decisions about money throughout their childhood, they’ll be much more likely to make good decisions themselves. Make it a point to set a good example around your kids—and don’t forget to talk about money management with them to reinforce these ideas!

Make the Most of the Back to School Shopping Season

Making the Most of the Back to School Shopping Season
Did you know that back to school time is a great time to talk to young people about money?

Each year, Capital One conducts a survey about back to school shopping, and each time, they find that young people want to learn how to manage their money well. Yet, research shows that most families go back to school shopping without ever talking about how they will spend their money. Discussing the concept of financial literacy as a family can help young people, even at a very early age, begin to develop positive habits around money. Research has also shown the importance of family communication in a child’s development.

Learn to foster positive family communication around money this back to school season (and beyond!) by following the simple tips outlined below.

  • Practice Smart Spending:
– Talk with your children about how you make spending choices based on more than just affordability. – Use language like “We’re not going to spend our money that way because…” or “It’s not a good value because…,” rather than just saying, “It’s too expensive,” which may give the impression that you would buy it if you could afford it.

  • Do: Bring your kids with you to the bank.
– If you’re making a deposit in a savings account, talk about the importance of saving “for a rainy day.”

  • Create Learning Opportunities: If you’re refinancing your mortgage, you have an opportunity to discuss the concept of interest and the importance of paying off loan balances quickly.
– When you’re taking out a car loan, talk about how loans allow you to pay for things that you don’t have the money for, but you end up paying more in the long run.

  • Honesty as the Best Policy: If you are facing financial difficulty, be honest with your children.
– You don’t need to worry them with all the details, but it is helpful for them to learn that money isn’t magical—it doesn’t just appear when you need it.

  • Stress Wants vs. Needs: Many kids—especially young ones—have difficulty differentiating between wants and needs.
– When your child says she “needs” something, ask if she really needs it, or if she just wants it. – Make sure your child understands the difference, and start paying attention to what you’re saying and the example you’re setting—for example, do you really need an expensive cup of coffee to get you through the morning?

  • Keep an Open Dialogue: When you’re out shopping, talk with your kids about why you make the purchases you do.
– Are you influenced by advertising? Pricing? The quality of the product? How do you choose one product over another? Help your child start thinking carefully about making purchases.

  • Be an Example: Discuss with your children the choices you make with your money.
– For example, how does your caring for others impact how you save, spend, and give money away? Why do you sometimes wait to make certain purchases? What does it mean to you to be responsible with your money?

  • Highlight the Positive: Many financially savvy practices, such as buying secondhand, donating old clothes to a thrift store, and reusing and recycling goods, are also good for the environment.
– Point out that not only are you saving money by doing these things, but you’re also taking action to help preserve the environment.

  • Do: Take advantage of financial literacy resources for families such as www.bankit.com

Talking with Your Kids about Money

In some families, talking about money can be more uncomfortable than talking about sex.1 Many parents don’t know how to approach the topic of money, and some avoid it altogether. By starting the discussion early, you can make it easier to talk about this tough topic later, when your child is making larger purchases, thinking about getting a job, or beginning financial planning for college.

 
Practice Smart Spending: Talk with your children about how you make spending choices based on more than just affordability. Use language like “We’re not going to spend our money that way because…” or “It’s not a good value because…,” rather than just saying, “It’s too expensive,” which may give the impression that you would buy it if you could afford it.

Do: Bring your kids with you to the bank. If you’re making a deposit in a savings account, talk about the importance of saving “for a rainy day.”

Create Learning Opportunities: If you’re refinancing your mortgage, you have an opportunity to discuss the concept of interest and the importance of paying off loan balances quickly. When you’re taking out a car loan, talk about how loans allow you to pay for things that you don’t have the money for, but you end up paying more in the long run.

Honesty as the Best Policy: If you are facing financial difficulty, be honest with your children. You don’t need to worry them with all the details, but it is helpful for them to learn that money isn’t magical—it doesn’t just appear when you need it.

Stress Wants vs. Needs: Many kids—especially young ones—have difficulty differentiating between wants and needs. When your child says she “needs” something, ask if she really needs it, or if she just wants it. Make sure your child understands the difference, and start paying attention to what you’re saying and the example you’re setting—for example, do you really need an expensive cup of coffee to get you through the morning?

Keep an Open Dialogue: When you’re out shopping, talk with your kids about why you make the purchases you do. Are you influenced by advertising? Pricing? The quality of the product? How do you choose one product over another? Help your child start thinking carefully about making purchases.

  • Be an Example: Discuss with your children the choices you make with your money. For example, how does your caring for others impact how you save, spend, and give money away? Why do you sometimes wait to make certain purchases? What does it mean to you to be responsible with your money?

Highlight the Positive: Many financially savvy practices, such as buying secondhand, donating old clothes to a thrift store, and reusing and recycling goods, are also good for the environment. Point out that not only are you saving money by doing these things, but you’re also taking action to help preserve the environment.

  • Take advantage of financial literacy resources for kids, such as Disney’s The Great Piggy Bank Adventure, an online game that teaches children the basics of financial planning.

Parenting in a Recession


The current economy is in rough shape; prices are up, salaries are down, and layoffs are common. And parenting is expensive. So how do you teach kids about money management when it’s tough to make ends meet?

 
Don’t: Buy (and encourage others not to buy for you) a lot of new clothes or toys for your babies or very young children. Remember: children grow out of clothing quickly! Many people are willing to donate old baby clothes and toys to friends or acquaintances.

Do: Take advantage of places like consignment and second-hand stores. If your child needs sports equipment, toys, or certain articles of clothing, you may be able to get a really good deal if you shop around for used items.

Consult Your Community: Some schools offer prepackaged school supply kits at a discounted price, and often use the proceeds to fund classroom activities and other needs. Many congregations, food pantries, and local service groups also collect school supplies to donate or sell at affordable prices. Find out if your community has programs like this, and take advantage of them if possible.

Tough Times? Lean on Your Parenting Community

When times are tough, rely on your neighbor. Maximize your available time, energy, and skills by trading services with friends or family for such needs as childcare, meal preparation, or house cleaning. This is also a great way to build a network of caring adults and a close-knit community. Talk about money management within this network and help each other out when you can.

Kids and Jobs

When kids begin to approach the middle-school to teen-aged years, they may start thinking about getting a part-time job. Whether or not your financial situation requires that your child get a job, it can be an educational experience and help your child gain valuable personal financial literacy skills.

By helping your teen make good decisions about employment and teaching her or him necessary financial skills, you can make sure that he is prepared to enter the workforce and begin making smart financial choices.

 
Save, Share, Spend: When your child gets a job, sit down with him and decide on a percentage of his wages he will put into a savings account, and a percentage he will donate. Starting this early will help him remember to save and give in the future.
Help Your Child Open a Bank Account: Explain the difference between a checking account and a savings account. If you set up direct deposit, help your child pay attention to the way the balance changes on payday.

Create a Balance: Remind your kids that even though working and earning money is important, so are family, school, and friends. Creating a balance among these different parts of life is one of the most effective ways that part-time jobs teach kids about money and time management.

Let Them Make Their Own Decisions: You can make observations and suggestions, but remember that allowing older teenagers to manage their own money is one of the best ways that you can teach your kids about money management.

The Younger the Better! If younger children want to earn money, recommend that they do jobs around your home or the community (raking leaves, washing windows, or babysitting) to earn some extra cash. In this way, they’ll be able to make money as well as learn the value of working for income without having to get a part-time job.

Thinking Further About Money Management

It can be difficult to raise kids with sound financial skills, especially in a culture that urges all individuals to “spend, spend, spend!” Encouraging your child to be smart about earning, saving, and spending will help her or him make sound decisions about finances and develop a sense of financial responsibility. Finding a balance between guiding your children and letting them take control of their own finances is something that comes after years of practice, but it is well worth taking the time to do. With adequate education, you can be sure that your child will have the skills and knowledge to navigate the complicated world of personal finance.

Books Available from Search Institute

Other Useful Web Sites

  • BankIt — Search Institute and Capital One have partnered to create an educational resource for both teens and parents. This site contains a great deal of interactive, useful information for people of all ages.
  • Teens and Money — Consumer Action’s training series offers useful materials, including booklets and presentation slides in several languages, for parents and caring adults to use in teaching teens about finance, including budgeting, banking, saving, credit cards, and more.
  • MoneyWi$e — This site contains a large assortment of multilingual, educational information on finance topics like building good credit, banking basics, and identity theft and fraud protection.
  • ShareSaveSpend — Nathan Dungan offers a variety of educational resources and programs fit for individuals, families, or groups, as well as speaking engagements. You can also sign up for the ShareSaveSpend newsletter to receive valuable financial tips in your inbox every month.

More Books You May Like

  • Raising Money Smart Kids — Written by Janet Bodnar, Kiplinger’s Personal Finance editor, this book will help you teach your children valuable financial skills that will help them throughout the rest of their lives.