Age-by-Age Tips for Raising Money-Smart Kids
Lee McAdoo, managing director, investor education at TD Ameritrade, shares how she empowers her daughters, and children of all ages, to take control of their financial futures.
As mothers, we spend countless hours teaching our children about good manners, stranger danger, and the value of hard work. All of which will help them survive in the real world. But there’s another skill we should be focusing on: money management. According to a 2015 evaluation conducted by the Program for International Student Assessment (PISA), approximately one out of five 15-year-olds in the U.S. doesn’t meet the baseline for financial literacy, meaning they lack a basic understanding of bank accounts, credit and debit cards, and loans. Only 10% understand complex financial issues such as taxes.
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Although discouraging, these numbers aren’t surprising. Money is one of those taboo topics that adults don’t like to talk about so it doesn’t come up in conversations with our children. However, we have to put our discomfort aside for the sake of our loved ones and take the lead in helping them become financially savvy. Having a strong foundation that’s based on setting goals, saving money, and avoiding debt may set your children up for success throughout their lives. As they transition into adulthood, most of their major life decisions will involve money, whether it’s managing taxes, taking out a mortgage, starting a business, saving for retirement and higher education, or estate planning. Plus, we might not be able to rely on schools to do it for us. According to the Council for Economic Education, only 17 states currently require students to take a personal finance class and only slightly more (22) require an economics class. I want my daughters–and all children–to feel empowered and confident enough to take control of their financial and professional futures. That’s why I’m sharing some of my favorite tips to help kids become money smart. The key is to show not tell; age-appropriate, hands-on activities are generally more effective than lectures.
Preschool: Putting Them on the Right Path
The toddler years are a good time to start laying the foundation and introducing basic concepts. At this age, children are like sponges, absorbing everything that’s going on around them, and they love to act “grown-up.” You may want to consider:
- Playing a matching game to help them identify different coins
- Using loose change to practice counting
- Giving them a piggy bank to collect coins
- Playing store or restaurant with pretend money
- Letting them hand money to the cashiers when you shop
Grade School: Building Their Money Management Skills
By the time they enter kindergarten, most kids understand you need money to buy things, but they may not fully grasp where it comes from or the importance of saving. The goal at this stage is to teach children that, except for birthdays and other special occasions, no one is just going to give them money; they have to earn it. And sometimes they’ll have to wait to get what they want, such as a new toy or video game.
- Get down to work. There are many ways for grade-schoolers to earn money. For your younger children, you might want to consider paying them to do odd jobs around the house. Or you could help them set up a lemonade stand. It may be old-fashioned, but it’s also a way to show that work can be fun. Your older children might be able to help a trusted neighbor with yard work or by walking their dog.
- Set goals with save, spend, and donate jars. Like most children, your child probably begs you to take them shopping as soon as they have some money. Dividing their funds among these jars is a way to help them fight this temptation and to also learn several important concepts, including budgeting, delayed gratification, and the satisfaction of helping others.
- Take it to the bank. Although many people now bank online, visiting your local branch can be a great learning opportunity. Once your child has a significant amount in their save jar, consider taking them to the bank to open a savings account. Then on subsequent trips, you could have them fill out the deposit slips and interact with the tellers.
Middle School and High School: Preparing Them to Fly the Coop
The teen years may be the most challenging time to talk about personal finance with your children. The issues are more complex, and their friends’ advice tends to carry more weight than yours. But it’s important to keep the conversation going as they’ll soon have to handle these issues on their own. You might consider:
- Help your teens practice investing on the thinkorswim platform from TD Ameritrade. With an account, you can help them get familiar with how the stock market behaves, and gain some practice without putting real money at risk.
- Using real-life examples to discuss investment topics with your older teens. If you’ve set up a college savings plan, you could pull up the account online and explain the different sections, including fees, performance, and asset allocation. You could do the same thing with your IRA or 401(k) statement, or other investment accounts, assuming you’re comfortable sharing this information.
- Including them in discussions about saving for college and major family purchases, such as a new car or kitchen appliance, to help them better understand the cost as well as the different factors involved in the decision-making process.
- Sitting down with your teens while you pay your bills, to help them gain a greater appreciation for how much it costs to run a household.
- Having your teens watch the Investing Basics video series, to learn more about stocks and compounding.
- Holding a “mom boot camp” where your teenagers can practice creating a budget, balancing a checkbook, requesting a credit report, and learning how to establish credit.
Healthy Financial Habits Start at Home
As noted by Rock the Street, Wall Street, an organization dedicated to providing financial education to girls, “There is a financial illiteracy epidemic in the U.S. Student loans and credit card balances are the highest they have ever been and workers are putting less and less away in their retirement accounts than ever before.” It’s up to us moms (and dads) to help turn this situation around by setting a good example for our kids and teaching them how to be financially responsible. The money habits they form now under our guidance are the ones they’ll likely take with them into adulthood. And remember, it’s never too late to get your children on the path toward financial well-being.
Lee McAdoo is the managing director, investor education at TD Ameritrade. You can follow her on Twitter at @LeeMcAdoo_TDA.