Teaching children about money — one stage at a time

Teaching children about money and how to manage it is an important parental responsibility, and there are many books and articles devoted to the subject. Some of the best guidance includes: Start early, while children are still toddlers. Be open with your kids about your own financial experiences, including mistakes you’ve made. And demonstrate daily the financial responsibility you are preaching.

Another common message is that teaching youngsters money management requires different strategies at different stages of childhood. Here are some of the lessons and activities we recommend at each age level:

PRE-SCHOOL

• Introduce toddlers to money. Work with your child to identify the different coins. Make a game of it.
• Work on counting skills. Start with simply counting objects but then have the child count coins and dollars.
• Encourage playing store. By exchanging play money for goods, your child will begin to understand the basics of commerce.
• Take them to the grocery. Try this: Give your toddler $1 to spend in the store, let them choose any item they want, and have them hand over the dollar to purchase the item and experience the exchange of goods.

GRADE SCHOOL

• Start paying allowance. Tie allowance to successful completion of chores around the house.
• Open a savings account. Make their first trip to the bank an event. Open the account and encourage your child to make regular deposits from allowance, gifts, etc.
• Stress the importance of saving and setting financial goals. Demonstrate the power of putting away a certain amount of money each week toward a special goal. Have your child track progress toward the goal and then share their joy of achievement when they meet it.
• Explain financial limitations and the value of budgeting. Even in families of wealth, funds aren’t infinite, so children need to understand limitations. Try this: If you’ve planned a family vacation, let your children weigh in on what you will do each day. Tell them how much each activity costs and that you only have a certain amount to spend. Choosing what the family will spend those dollars on will help them learn about tradeoffs.

• Introduce charitable giving. Explain the rationale for personal philanthropic giving in simple terms, how it fits into your family values, and help them get started. Try this: When a child is 5 or 6, give them three jars —  one for saving, one for spending and one for sharing.

HIGH SCHOOL

• Help your teen open a checking account and get a debit card so they can start making purchases with plastic. Explain the difference between debit and credit cards.
• Teach about other basic banking products like certificates of deposit and high-yield savings accounts. Let them know there are choices that can help them increase their savings.
• Educate about digital payment networks such as Venmo and Zelle and help them start using these increasingly popular payment methods.
• Show how to monitor bank accounts online (including for suspicious activity).
• Initiate a discussion about investing. Explain the difference between saving and investing. Illustrate the power of compounding and why your teen needs to invest early to pay for long-term goals such as college and retirement.
• Support efforts at getting a job, and help your child start investing. Try this: Offer to match a child’s savings dollars in a 529 college savings plan or Roth IRA.

COLLEGE AGE (YOUNG ADULT)

• Help secure a credit card and make sure they understand all of its features (e.g., rewards)
• Teach the proper use of credit. Explain that credit cards are not free money and interest accrues when you don’t pay off a balance. There are online calculators you can use to illustrate this.
• Explain the value of building a credit history and help them get started. Let them know their ability to get an apartment or a particular job could depend on it.
• Encourage your young adult to think of themselves as stewards of the family wealth. Remind them that family funds could be used well into the future to support younger generations, keep the family business going, or promote good in the world. Try this: Ask your child to serve on the board of the family foundation.

HOW WE CAN HELP

Talking about personal financial matters with your children isn’t always comfortable. If you would like to arrange for someone at Union Bank to help lead a discussion on money management —  whether it’s focused on the basics for a grade schooler or more advanced concepts for a high school or college student — visit The Private Bank.