Special guest Money Girl has helpful tips to turn your child into a financial genius. Use these tips to improve your child’s financial literacy and create a solid foundation for a bright future.
As kids get older, parents should discuss with them how to allocate money based on their specific goals and ideals. However, young adults should get used to the idea of saving a minimum of 10% to 15% of their income—because that’s the ticket to reaching important long-term financial goals, like retirement, as adults.
Mighty Mommy: Today’s kids have a very strong entitlement factor where they see the latest electronics or expensive brand name clothing and feel as though they have the inherent right to own these. Do you have a suggestion or formula that families could use to help their kids understand the value of such high-ticket items and how kids might be able to contribute to the purchase of such extravagant things?
Money Girl: One of the benefits of paying children to do household chores is that it gives them a way to value money. For instance, let’s say you pay a child $5 to sweep the driveway or to shovel snow for a half hour.
If they want to buy an iPod Shuffle that costs $50, they understand that it takes 5 hours of work to save enough. If they want the iPod Nano for $150, they’ll have to put in 15 hours of work. There’s nothing wrong with kids wanting or buying expensive stuff as long as they’ve earned it or have a yard stick to value their parents’ contribution.
To introduce children ages 10 and up to the concept of budgeting, there are some great online financial programs and tutorials. One of my favorites is Family Mint, which offers a workbook-based training program that’s designed to last for 2 months so parents can spend time with kids, gradually helping them form good financial habits.
Family Mint also offers a web-based software that allows kids to manage their money by logging in all of their transactions. It isn’t linked to a real bank account, but allows kids to manage money in a similar, clever way. Parents act as the bank by setting up recurring deposits for allowances or giving kids money when they want to make a withdrawal. You can get a 14-day free trial and see how fun it can be to teach kids about tracking money, setting goals, budgeting, and earning interest.
Mighty Mommy: When should we introduce the idea of credit and credit cards to our kids?
Money Girl: Since credit is a more advanced financial topic, I recommend discussing it with older, high-school aged kids. The big concept to teach is that it costs money to borrow money. And using a credit card is no different than taking out an expensive loan that must be paid back.
A good way to convince kids how expensive credit can be is to show them an online credit card debt calculator, like the ones at Bankrate.com or Dinkytown.com. The Cost of Debt Calculator at Dinkytown tells you how much interest you’ll have to pay based on how much you owe and how long you take to pay it off.
Take a simple example like buying a new computer for $2,000 on a credit card that charges 18% interest per year. If you only make the minimum payments, it will take over 8 years to pay off and you’ll have to fork over more than $1,000 in additional interest. That increases the price of the computer over 50%.
Have you started teaching your kids about finances? Please share in the comment section or post your ideas on the Mighty Mommy Facebook page. You can also connect with me on Twitter @MightyMommy or e-mail me at firstname.lastname@example.org.
Check back next week for more parenting tips. Don’t forget to check out my family-friendly boards at Pinterest.com/MightyMommyQDT.
Thanks so much to our special guest, Laura Adams, for all of the wonderful tips she shared with us about teaching our kids financial responsibility. Have a wonderful week with your family and until next time…..happy parenting!