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Birds and the Bees: Kids and Money

Explaining the birds and the bees was once the most awkward conversation you could ever have with your kids. But today, it might be even more awkward to talk about money with your kids.

In general, from elementary school through college, no one in the educational system prepares our kids for their financial future. So, it’s up to us, as parents, to provide the “talk” about everything from saving for the future to mindful use of credit cards and student loans.

Let’s dive in.

Preparing for a Stellar Financial Future

When it comes to kids and money, planning for the financial future is one of the most important lessons we can teach. Afterall, you want your kids to have a good life.

And to prepare them for that good life, they need smart, basic information about money itself. Without that knowledge, it’s hard to do well in life. So put your reluctance to talk about money aside, and teach them the value of money early.

The Real Value of a Dollar

Let your kids know that money is what you use to buy things. Keep it simple – let your kids know that you need to work to get money, and when you’ve earned it, you can use it to spend, save, and give. Focus on those three uses and then just talk to them about money regularly, as if it were an ordinary aspect of life, they should know about, which it is.

It’s easy to share basic information about money:

  1. Every time you go to the bank or store, tell them what you are using your money for

  2. Show them your receipts from purchases, and how much money things cost

  3. Talk about money when you play “store” or other imagination-based games together

  4. As your kids get older, open a savings account for them at the bank

  5. Help them earn money by doing chores around the house

  6. Help them find work to do for others, like babysitting or gardening

  7. When they reach their teen years, encourage a paid job or learning internship

  8. Teen years are also the time to discuss and encourage small investments in stocks and bonds, or an interest-earning Money Market account

  9. As your kids get older, discuss larger financial goals such as saving for college, or purchasing a car

And, along with showing kids what things cost, let them know that not all money should be spent. Some money should be saved for those future goals.

Teaching Your Kids About Saving Money

The idea of saving money is a good one to impart early. It helps kids think about setting goals, and the importance of preparation, both of which are important for every aspect of their lives. But saving for a distant future might be challenging for kids to understand.

So, since you’re starting to talk about saving money when your kids are still young, help them get in the habit of saving by using a piggy bank or saving jar, and stressing simple stuff, like saving is good, and saving is something that you like to do. Then, pick a savings goal that isn’t too distant for them to reach, like saving to buy a toy.

Of course, as your kids get older, you can introduce other things to save for, like college or a vacation, as well as longer-term ways to save.

Among the many ways to save over time is a Roth IRA account. Why set up an individual retirement account for your kids when they’re still so young? Here are some reasons:

Roth IRAs allow the contribution of post-tax (rather than pre-tax) to grow tax free. There’s no minimum age or balance requirement and you can invest your child’s maximum earned income up to $6,000 (2021 cap) every year. Whatever you invest in is growing tax-free until withdrawn at age 59 and a half or older.

And, you earn a return on your contributions and on the returns that contribution earns. This is the beauty of compound interest!

It is important to note that money can be withdrawn from a Roth IRA prior to retirement age as long as there is a qualifying reason such as college expenses, medical/disability costs or paying for a first-time home purchase.

Smart Credit

So we’ve talked about earning and saving – but what about credit, and the all important credit score in today’s world?

First, let your kids know that credit cards work like money, but they aren’t a replacement for it. Tell them they have to pay in installments on time or pay the balance in full or there are negative consequences. And let them know those installment payments come with extraordinarily high fees and interest, increasing the cost of the item paid with a credit card.

Second, make sure your kids know it’s important to spend within your means, and pay off those credit purchases immediately, to avoid those high fees and interest rates.

Finally, when your kids are old enough, you can add them to your own credit account to help them build their credit history and practice using credit.

Student Loans – College Today, Debt Tomorrow? 

Along with teaching your kids about smart credit, talk to them about college loans – not when they’re toddlers, but before they’re preparing to send out college applications.

Let your kids know it is possible to attend college without a loan, by looking into grants and scholarships, and limiting costs whenever possible, perhaps by choosing community college for the first two years or attending a state, rather than private, university. But if loans are needed, make sure your kids know that:

  1. All loans have to be paid back, with interest

  2. There are different types of loans – federal and private

  3. How to fill out the FAFSA – give your kids your help on these important forms

The FAFSA (Free Application for Federal Student Aid) shows your kids what types of federal student aid they’re eligible for, from grants that don’t require repayment, to student loans that must be repaid, as well as what the interest rates and repayment options will be.

Donating to Charity

From an early age, it’s also a good idea to separate the money you give your kids (or the money that they earn), into three categories:

  1. Spending

  2. Saving

  3. Giving

Along with their own personal needs, money can be used to benefit others who need it, whether it’s a kitten rescue organization or other kids who need money for food and clothes. Discuss with your kids what cause or group they’d like to support by giving. Help them find one that interests them. And, if your kids don’t have any money to donate, they can always donate their time to picking up trash and cleaning up parks. It’s invaluable to get your kids to start giving back at a young age so it becomes second nature.

And let your kids know from an early age that you value giving: generosity and kindness to others is an important part of earning and saving money. Like all good things, what you do comes back to you.

Give Kids a Great Financial Example – You!

Along with what you tell your kids about money and saving, what you do with your money will be the example your kids see.

It’s not a great message for your kids if you are constantly complaining about spending too much or indulging in shopping or dining you can’t afford and then tell your kids about it. If you make smart saving and spending choices, they will, too.

Set your kids up to thrive financially by helping them understand basic finances. It may not seem like much but if they can start saving a portion of their allowance now, the odds of them being able to do the same with their first job increase dramatically.

Telling your kids about good money habits is great but showing them is even more effective.

Written by Matthew Delaney


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