You’d think it’d be on the list of critical subjects taught in school, but managing money is one that largely eludes today’s youth. Parents don’t need degrees in finance, however, to pass on basic money know-how that will benefit their children for the rest of their lives.
I asked Gregg Murset, a certified financial planner and founder of BusyKid, an app that teaches kids the basics of personal finance, for his advice about teaching children about money. Here’s what he said.
For younger kids, they should understand the difference between “wants” versus “needs” and that you should save more than you spend. You also want to help them understand the value of money by sharing experiences when you go shopping or pay bills online.
For teens who already understand money and the value of things, it’s a bit different. Financial concepts tend to become real for the first time the moment they land their first job.
Did anyone ever explain taxes, Social Security, or retirement until you filled out the employment forms for the first time? By this time, your teen should have a bank account, debit card, and money in savings. If you never used a system like BusyKid, then talk to your child about the importance of breaking up their paycheck (after taxes) so 40 percent is spent, 10 percent is donated to charity, and 50 percent goes into savings.
We recognize there are many different views on these topics, but it’s more important to focus on what chores and allowance give our kids. Chores teach work ethic, responsibility, accountability, and time management.
Allowance provides money, our kids need to begin learning how to manage it. Think of chores and allowance as your kid’s first paying job with you (the parent) as the employer.
I was looking for a way to get my six kids to understand how to manage the money they were earning from chores. They weren’t learning anything about money in school, and as a certified financial planner, I see firsthand how the lack of financial education hurts parents, so BusyKid was born. Now, kids get the hands-on experience they need in order to manage money the right way before facing overwhelming financial decisions as adults.
In BusyKid, kids earn an allowance and then make decisions on how to manage it, including saving, donating to charities, and investing in real stock. We believe kids using BusyKid regularly will develop a solid routine for managing money.
Parents have the final OK whenever money is moved outside the system for cash, a donation, to buy stock, or for how much money is placed on the BusyKid Visa Prepaid Spend Card. The best way for a parent can help a child manage money is by having a conversation on why the funds are being moved or what’s the best use of the funds.
For the most part, parents today have about the same financial education as their kids, so it’s not surprising that bad decisions have resulted in bad credit scores, large debt, and no savings accounts. Still, we feel that children can learn valuable lessons no matter the parent’s history, and parents should embrace the opportunity to share their history with kids old enough to understand.
When it comes to college, maybe parents need to revisit the “want” versus “needs” discussion. Considering student loans is serious business, especially for the loan issuer.
I believe student loans should be a last option, just ahead of not going to college at all. If you presently have a young child, start putting money away now for when this time comes. If you must take a loan out for college, take the least amount possible, though it’s tempting to take more. Also, make sure to take your future earnings into account. Should you really take $80,000 in loans when you’ll make about $30,000 as a new teacher (depending upon where)?
Getting kids the hands-on practice they'll need to learn managing money takes time. Kids will be kids, so expect some pushback. However, if they see their savings account grow and have the ability to buy things with their own money, the motivation to keep going will be there.