I was never good with money. When some kids were learning how to save money and spend wisely I was into video games and toys. Actually I was like a large portion of American children who weren’t taught about personal finance. African-Americans, especially aren’t taught about saving for 401k’s and credit cards and student loans as much as we should be. In my own experience I wasn’t handed a credit card until college and the only thing I was taught was only spend it in emergencies!!!!! Well, you wouldn’t believe how many emergencies consisted of alcohol and chicks in the club.
I want like all parents want for their kids. I want my kids to do better than I did. I compiled some information in this blog so if you’re like me, you can start your child on the road to financial responsibility and understanding. Here are some things to keep in mind when starting your child on this life long road.
- Ages 3 – 5 – Learning to wait to buy something you want. – According to Forbes magazine online learning to delay gratification can be a factor in predicting how they can be successful going into adulthood. Kids need to learn if they want something they have to save and be patient to get it. “You really can’t start too early,” says Kobliner. Speaking of her own family, she says, “When we go into a store, if I say, ‘We don’t have money for this,’ they’re smart — they know we have credit cards,” So, she would say, “We’re here to buy a gift for X, and we’re not going to buy anything for you, because we’re not here for that.” The lesson is going to the store doesn’t always mean they will go home with something new.
- Activities for Ages 3 – 5 – When you child is in line emphasis the importance of waiting in line for something they want
- Create three Jars each labeled “Sharing,” “Spending,” or “Saving” – Every time your child gets money from something like chores or birthday money divide the money equally among the jars. Have them use the spending jar for small purchases like candy or stickers. The money in the sharing jar goes to for someone you know who needs it or to be donated. The saving jar goes to more expensive item.
- Have your child set a goal for a toy or prize. Something moderately priced so they can actually get it in the near future. “Then it just gets frustrating, and it gets hard for them to wrap their head around. It’s really more about her being cognizant that she’s saving for a goal, then, ‘Oh, I really need her to scrape together those $10 to buy the tutu.’ You want to set them up for success,” says Kobliner. If the child does have an expensive goal, then you ca match the amount they save to help reach their goal in a shorter time.
- When your child adds money to the jar make sure you count it with them. Let them know how much they need to go to reach their goal and when they will reach it. This all helps giving them the sense of patience and saving.
Ages 6-10 The Lesson How to make choices about spending money.-The importance of this lesson is to help them understand that money does last forever and they need to use only what they have. This will help them progress into more adult-like financial decision-making.
Activities for Ages 6-10- Make them aware of some daily financial decisions you make. For example,”I only buy Pepsi when it’s on sale.” Talking about deals and such as buying in bulk helps them understand how to budget wisely.
- One thing you can do is give your child some money $2 – $5 dollars and have them make choices about what fruit or item to buy. This will help them make choices for the future.
- When you are shopping talk aloud so your child can hear you make financial decisions as a grownup. “Is this cheaper at Wal-mart?” etc.
Ages 11 -13 – The Sooner you save, the faster your money can grow from compound interest. This is the part when you can help advance the idea of long- term saving. Introduce the idea of compound interest.
Activities for Ages 11 – 13 – Describe compound interest using specific numbers. “If you set aside $100 every year starting at age 14, you’d have $23,000 by age 65, but if you start at age 35, you’ll only have $7,000 by age 65.”
- Have your child do some compound interest calculations in Investor.gov. In this they can see how much their initial investment will grow by the interest rate applied.
- Have your child set a goal for a longer term goal. “Those sorts of tradeoffs, called opportunity costs — what are the things you’re giving up to save money — is a very useful thing to talk about. At this age, kids are trying to not save because they want to buy stuff, but thinking of what long-term goals are and what they’re having to give up shows that it’s a good decision,” says Kobliner. For example, she says, if your child has a habit of buying a snack after school every day, she may decide she’d rather put that money toward an iPod.
Ages 14 – 18 – If you’re considering college. Make sure you go over how much each school would cost. See of the college has a net price calculator and apply for the expenses besides tuition. Just reassure them that college grads make more money than those who don’t. Hey set a date on the calendar to talk about. You can go out to eat or another place to sit down and talk about it. Try to make them feel engaged. Also have a number ready to go of how much to borrow. Typically first year student borrow $5,500, second year $6,500 and third year and the following years is $7,500. Also make the numbers real for them. Put the money they are preparing to borrow for college in tangible terms For example this $30,000 loan your taking is equal to buying your Ipad air with 32 GB 50 times over. $600 a piece OUCH!!!Last set expectations for you kids Set up a repayment schedule with your child and put it in writing if you have to. Don’t go by figuring out the details as they come along. Be fiscally responsible.
Activites for 14 – 18 – Discuss how much you can contribute to your child’s college education each year. “Every parent should start the college cost conversation by ninth grade,” says Kobliner. “Tackling the subject early and being honest about what your family can afford will help kids be realistic about where they may apply.”
- Look for which private schools are generous with financial aid and how much is free money like grants and scholarships. Also look into how much your child will owe and if there are any government programs that will help pay back the loans borrowed.
- Have your child use a college scorecard to compare college costs and factors such as employment prospects, and also the amount of college debt and how it would affect your child’s lifestyle.
- Estimate how much financial aid you gonna get using the FAFSA 4caster tool. You should also research additional loans, scholarships and grants. Use calculators to estimate monthly loan payments on studentaid.ed.gov. “Parents should absolutely make their college kids get a part-time job,” says Kobliner, adding that research by Dr. Gary R. Pike of Indiana University-Purdue University Indianapolis shows that students who work 20 hours a week or less at on-campus jobs get better grades because they’re more engaged in student life. “But limit those hours!” she says. “Working more than 20 hours per week can hurt kids’ academic success.”
Ages 18+ – Use a credit card only if your gonna pay off the balance in full that month.“The average household owes $7,084 in credit card debt. To reverse the trend of spending beyond our means and racking up hundreds of dollars a year in interest, it’s critical that parents teach their kids how to use credit cards responsibly (or better yet—not at all!—unless they can pay the total bill every month),” says Kobliner.
Activities for Ages 18+ – Teach a child that if a parent cosigns on a credit card that any late payments will reflect badly on the parents credit history.
- Look for a credit card with no annual fees and a low-interest rate. Use sites like Bankrate,creditcards.com,credit.com and cardratings.com.
- The card is not for everyday living expenses. It’s for emergency expenses. Building up emergency expenses in savings is ideal and the goal is to set up six to nine months worth.
- Discuss the responsibilities that come with owning a credit card, including the importance of a good credit score. (To learn more about credit scores, read Nolo’s article Credit Scoring.)
- Recommend that your child starts out using the card only for emergencies, or else for purchases that can be paid off at the end of the month (using an allowance or the child’s own earnings).
- Impress upon your child how quickly credit card interest can pile up and dwarf the original cost of what was bought. A good way to do this is by using credit card calculators like Nolo’s How long will it take me to pay off my credit card? Calculator.
- Sit down with your child and carefully review the terms of credit card offers and contracts. (To learn more about choosing a credit card, read Nolo’s article Shopping for Credit Cards.)
- Make sure the child has a plan for dealing with the monthly payments and will call you, pronto, if there’s a payment problem. But don’t give your child the idea that you’ll simply bail him or her out after a spending spree. (For more tips on how to use credit cards wisely, see Nolo’s article Avoiding Credit Card Debt.)
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