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While parents say they would rather talk to their kids about finances than sex, only 28% are doing so. That's what BECU found in its 2019 Finance and Parents Survey of 1,000 adults. The credit union survey also found that 82% of parents cite fear as a barrier to talking about finances with kids.
If you don't teach your kids money management, though, chances are no one will. Only 21 of the 50 states require high schoolers to take a personal finance course to graduate, according to the Council for Economic Education. Helping your kids gain basic skills like budgeting and proactively managing their money can begin early. You can start teaching your kids how to budget by simply opening the lines of communication and providing some simple guidance. Here's how.
Teaching Elementary School Children How to Budget
The most important thing you can do to help your kids understand budgeting is to model good money management. Telling your kids that budgeting is valuable isn't nearly as impactful as demonstrating good practices every day. If your elementary-age kids have a natural-born interest in accounting, you can pass along some practical tips on budgeting. Otherwise, lay the groundwork with these fundamental concepts:
- Money is finite. Even a very young child can learn that we can't buy everything we want just because we want it. Explaining—repeatedly, if necessary—that money is a limited resource sends the message that money is something we manage.
- Having money is saving money. Open a savings account for your child and help them understand that savings is the place where their money should live. At this age, keeping money in savings and withdrawing only what you intend to spend is a good starting practice. Later, when your child has more money coming in, you can introduce the idea of setting aside money to save. Additionally, having a piggy bank at home to collect cash encourages kids to keep track of their money and watch it accumulate.
- Opportunity is yours to create. If your child wants a video game that isn't in the budget, challenge them to figure out how to afford it. Can they do some extra work around the house to earn money? Do they have money in savings they can use? If the dollar amount is out of their reach but you have the funds, you could offer to match their contribution.
Teaching Middle School Children How to Budget
By middle school, kids have the math skills and conceptual thinking to do some rudimentary budgeting. They're also ready to learn some of the realities of money management—from you, the in-house money manager. Bring your kids into your financial world. While you don't want to burden them with money stress or overwhelm them with too much information, no one is going to talk to them openly about how to earn a living and make ends meet like you will.
- Share your costs. Explain how much it costs to maintain your home—rent or mortgage, insurance, utilities and maintenance. Tell them how much you spend on groceries each week. How much did your car cost? How do you pay for it?
- Talk about credit. Credit is an abstract concept, but it can dictate whether or not you buy a home or finance a car. What is credit? How does it work? What do you do to maintain good credit and how does that help you?
- Show them how to use a spreadsheet. Most middle schoolers don't have enough capital to warrant a budget of their own, but they can use spreadsheets to understand how budgets work. Ask them to list out how much owning a dog would cost. Or how much they would need every month to pay for a new car with a five-year loan.
- Consider a parent-managed debit card. Part of budgeting is learning how to control spending on a card account. What if you could give your kid a card with training wheels? Parent-managed debit cards like Greenlight function like bank debit cards, but they come with an app that allows parents to view and control spending—or receive alerts when transactions are made. Spending is limited to what's loaded onto the card, keeping risk low.
Teaching Teenagers How to Budget
Teenagers face new money challenges: getting a first job, social pressure to spend and even high-cost school and extracurricular activities. As their independence increases, so can their responsibilities.
- Introduce zero-based budgeting. Creating a budget that accounts for every dollar of income and spending each month is helpful for anyone, but teens are at an especially good financial moment for zero-based budgeting. Income and spending are relatively simple, there's a fair amount of flexibility, and they aren't prone to budget-busting surprises like a leaky roof.
- Help identify money wasters. Your teen does not need to carry a designer handbag or have a hand-tossed pizza with prosciutto di Parma delivered to band practice four times a week. You can explain to them how frivolous spending can hurt their ability to save and to spend on needed items.
- Reinforce savings. Establishing the habit of setting aside a portion of every deposit for savings is priceless. Just 10%—every single time—will pay dividends for life.
- Encourage them to use digital tools. Teens already have an uncanny ability to master payment apps like Venmo and Cash App. Help get them started with mobile banking (and a checking account), show them how to sign up for account alerts and connect them with money management apps like Mint or Plaid.
- Get their help with college budgeting. That's not just budgeting their personal expenses during college, but also budgeting to pay for college. Cost can be a huge factor in determining where your kids go to school—and how much debt they might have when they graduate. Get them involved early so they can factor money into their college decision-making.
When Should Kids Start Building Credit?
While it's great to go out into the world with a bit of a credit history and a decent credit score, kids do not necessarily need access to credit at an early age. First consider whether they're ready to handle credit responsibly. If not, wait.
For young people looking to get credit for the first time, there are a few common options to explore. You may be able to add your minor child to your credit card account as an authorized user. They'll receive a card with their name on it they can use to make purchases, but they are not responsible for paying. You are.
If your child is off to college or ready to move out, a secured credit card can help them get started in the world of credit. These cards generally start with a low credit limit and require a security deposit that typically equals the credit line. A card with a $500 credit limit, for example, may require a $500 security deposit, which will be used to pay the bill in the event of a default. Other cards offer college students a modest credit line without requiring a deposit.
Money Management Skills Pay Off
Having the skills to budget and manage money successfully can serve kids well throughout their lives. These are the building blocks for spending responsibly, saving for emergencies, securing credit, building wealth and enjoying a less stressful financial life. And while it's possible to learn these skills as adults, cultivating good habits from a young age makes those habits more likely to stick.