It is never too early to have your kids start saving money for their financial futures. Here are some steps to get them started and to keep them on track.
Start early. It is important to talk to your kids about financial responsibility. When they are old enough to take on some household chores, give them a list of chores to do and then pay them a weekly or monthly allowance for completing the chores. Help your kids make some simple decisions with the allowance they earn. How much do I put in savings? How much should I spend? Helping kids understand the importance of these decisions will give them the confidence they will need to make important financial decisions in the future.
Save. Opening a savings account is a great way to get your children involved and in the habit of saving. As they get older, look into low-risk investment accounts, money markets, or a mutual fund as ways for your children to save toward longterm goals. These types of accounts typically do not require a huge upfront investment. They can be a great start to understanding the different types of investment options.
Setting Goals. Encourage your kids to set goals, this can and will be the driving force behind any financial plan at any age. Whether they want a new game for the XBOX or a car when they turn 16, their financial plan will be driven by the goals they set for themselves.
Establish a Budget. Once your children are ready, usually by 11 or 12 years old, help them create and manage a budget. Whether they earn their allowance doing chores, or are making money by babysitting or cutting the neighbor’s lawn, give them the responsibility to pay for certain things they want. Help them
understand that their expenses cannot be greater than their income. Sit down with them periodically to go over their budget, and look at where they are spending their money. How do they feel about where they have spent their money? Do they wish they would have done anything differently? Having these discussions with your children open the lines of communication to be able to show them how to think about financial matters and how to make the right decisions.
Build Credit. Developing credit is a very important part of financial planning. Good credit will someday help your kids buy a car or a home. Unfortunately, credit is one of the biggest troubles young people tend to have. However, there are ways for you to help your children prepare for this responsibility. Think about getting them a prepaid credit card. Prepaid credit cards function much the same way as a debit card, you cannot spend more than the prepaid amount, but at the same time are reported to the credit bureaus like a “real” credit card, allowing them to build credit. Once you feel they have learned to live within their monthly budget, you could look into allowing them to get a low-limit credit card.
If your children never know what it is to be independent or self-reliant, or if they never have the opportunity to make mistakes and correct them, they will not become financially independent. Try to resist the temptation to bail them out every time they are in a financial crisis. If they push the limits and run out of money before the end of the month, let them feel the consequences. Hopefully next month they will reevaluate how to stay within their budget.