Top 15 Ways to Teach Kids about Money Management

The average teenager spends $2,150 per annum. If you can help your kid to save at least 50% of that from he/she is through to 17, there’s a $20,000 corpus at least for college.

Teaching your kid about money management is to help them secure their finances for obvious future expenses. Pre-emptive financial management skills are part of necessary life skills required today. Your kid must grow with fundamental knowledge about finance, from how to utilize structured settlement payments to channeling earnings into savings and then investments.

Here is a comprehensive list of ways to teach kids about essential money management skills.

Money Management for Teens:

Start Teaching Them about Money, when their Kindergartners and Preschoolers

15. Let them Have their Own Money

A simple trick to help kids start understanding the value of money is to give them savings jars. The moment they realize that money is not an inexhaustible commodity, they will start thinking about it. Build the concern and the necessity for financial management.

14. Have them Track Spending

Spend 15 minutes on a designated day every week to discuss their finances. Help them deliberate between different expenses and give them the liberty to choose between options but within budget. Know that their expenses will only increase with age. Kids will spend almost 82% of their money on personal expenses in their late teens as against 70% when they are 12 or 13 years old.

13. Communicate the Value of Money

Now that they have their money and are tracking their expenses, help your kids understand the value of money. Discuss finances in family meetings and make sure they are involved throughout. Synthesize problems or state the obvious then ask them to provide the required solutions. Let them decide where to allocate expenses.

12. Delegate Financial Responsibility

Delegating responsibilities is all about hands-on experience. Instead of taking your kids along to the bank or the ATM, let them do it. This way, you build the much necessary trust as well as sharing the responsibilities of the finances in concern other than providing first-hand experience.

11. Preach to Save for a Rainy Day

Monitoring expenses to meet budgets and help create investment corpora along the way is a great way to help your kids learn financial management. But it’s just as necessary to create a separate corpus as a contingency, i.e., the Plan B. Let your child deliberate on a Plan B. Have them save up funds for emergency requirements, be it innocent compulsive expenses!

10. Allocate a Bank Account

With 61% of teenagers already using a bank account for their personal finances[i], you should be happy if your child already has one. Make sure to provide complete liberty in using the account but also make it mandatory to review activities every 2 months.

9. Provide Loans or Investment Opportunities

With 70% of college grads learning their financial skills from their parents[ii], it is only natural for you to be their first-choice creditor or financer. Act as a bank albeit with limited resources that can provide credit or serve as a point of generating interest income.

8. Educate on Insurance

Fundamental know-how about insurance and insurance claims should be inculcated in kids. Help them to an in-house insurance situation, preferably on their laptop or tablet as damage or wear insurance cover.

Ask them to pay a nominal amount every month as part of the insurance cover and allow them to claim the structured settlement cash to cover the damage or get a replacement on EMIs. You can also allow them to sell structured settlement payouts and avail the necessary funds to purchase a replacement. Make sure to have another family member or someone that the child trusts represent the legal side of the insurance claim as well.

7. Integrate the Concept of a Monthly Budget

A monthly budget will typically include multiple avenues for expenses and savings or investments. Help your kid create a budget with room to spare for personal expenses and delegate responsibility of it. Have a budget review every 2 months when you review your kid’s bank account.

6. Encourage Multiple Income Sources

The times they are a-changing and you should make it a point to help them create multiple sources of income. More than 45% of teenagers are employed[iii] and you can help them maintain their work-study schedule.

5. Help Build Compound Interest Savings

Few investment profiles can provide the guaranteed return of investment like compound interest savings schemes. The onus is on you to invest funds for your child in similar schemes from their early teens.

With 32% of teenagers earning allowances from household chores, there’s nothing wrong with incentivizing housework despite the obvious notion not to. Discuss the possible avenue of creating a substantial investment corpus over a couple of years. Let them decide how much they wish to invest from their earnings from chores or odd jobs.

4. Save Up Early for College

47% of teenagers are concerned with debt and the future costs of studying in college. Make sure you invest a given amount of your funds to help build a base corpus. Your kid should be aware of this corpus and then aim to add to it further with investments.

3. Show them Opportunity Cost

There will always be multiple financial options to choose from and it is your job to sit with them and calculate the related opportunity costs. It is vital to consider and evaluate between varied financial products or options - whether to go for lump sum cash for a structured settlement or opt for monthly payments, deciding on the risk-reward ratios between multiple investment opportunities, etc.

2. Deliberate on Retirement

Although asking a teenager to consider retirement finances may be a bit far-fetched, you should at least point out that it is necessary. Pitch the idea that it is possible to retire from day jobs by 45 if they start investment profiles from 15 years of age.

1. Set an Example!

Above all, you must be an example-setter. You do not necessarily need a sorted financial scenario to demand your child to heed your financial advice. Help them understand that the guidance is to help them achieve what you wish you did!

About Kathy:

Kathy Manson has been working in the finance industry for over 20 years. She specialized in structured settlement and annuities. She is associated with many online publications and websites where she regularly blogs about latest financial trends. Twitter @ structuredfund

Citations

[i] Junior Achievement: Finance Survey

[ii] Research: Majoring in Money

[iii] Bureau of Labor Statistics: Employment and Unemployment