Teaching Kids about Money

6 Tips for Teaching Kids of Any Age About Money

Teach the value of
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Here’s a great way to give your children a huge head start in life: Teach
them smart money habits.

You may feel a little uneasy about this parenting task. After all, you may
not be all that confident about your own money-management skills. But you
probably know more than you think you do, and you will play a critical
role in shaping your children’s attitude toward money.

When do you start? As soon as a child can count and begin to distinguish
between coins, she’s ready for her first financial strategy: Don’t eat the
money. Here’s how to teach about money at each stage.

Toddlers and Preschoolers

At this age children can sort coins, learn their value and begin to
understand how money gets converted into "things."

5- to 7-Year Olds

By the time they start school, many children are ready to receive an
allowance. The goal is to give your child the opportunity to budget, spend
and save his own money. Most experts agree an allowance should not be
linked to chores or grades. Extra money for special jobs such as cleaning
out the garage is fine.

The amount of the allowance depends on which expenses the child is
expected to pay, so sit down with your child and map out a weekly or
monthly budget. One suggestion is to pay 50 cents per week for each year
of the child’s age.

You can encourage saving by dividing the allowance among three jars. Money
in jar 1 can be spent on whatever the child chooses. Jar 2 money is saved
for a more expensive item, like a toy or book. Jar 3 is reserved for
long-term savings, such as a college fund. Pay interest (even a few
pennies at a time) to jar 3 money. Children are fascinated when money
makes money.

8- to 10-Year-Olds

Make a trip to the bank to open a savings account. Let your child fill
out the deposit slip, and explain that the bank will pay interest.

1. Set a good example
2. Give your child a weekly allowance
3. Set up a three-jar system to teach spending and saving habits
4. Involve your children in family spending decisions
5. Help older children choose a stock or mutual fund
6. Set up a Roth IRA for children with earned income

Include your child in family discussions of finances, such as budgeting
and planning for family vacations. Explaining how you decided to forgo the
fancy sports car in exchange for a sedan and a family trip to the beach
can teach about trade-offs and your family’s values.

11- to 13-Year Olds

If your child shows interest in the stock market, choose a few stocks,
such as McDonald’s and Disney, and follow them for a few months. Stein Roe
Young Investor mutual fund (1-800-338-2550) buys stocks of companies that
produce products or services that children use. The fund sends workbooks,
newsletters and other child-friendly materials.

If the child has earned income from a paper route or baby-sitting, for
example, she can set up a Roth IRA that will accumulate a tax-free
retirement nest egg. A $1,000 investment at age 12 can grow to over
$150,000 at age 65.